HowTo: Non-Price Rationing

This one is interesting on a few levels.

Brokers snatch joy from Hannah Montana fans

… when Disney announced a 54-city concert tour, starting October 18 in St. Louis, Missouri, it was an obvious birthday present for Cara. But the day tickets went on sale, Cara’s mom, Maureen Von Minden, found she was shut out before she got started.

Ticket brokers swooped up thousands of tickets within minutes of them becoming available online and shut out legitimate Hannah followers. Desperate fans found they would have to pay brokers $350 to $2,000 for the $63 concert tickets.

The first thing that leapt from my mobile phone was the subsequent passage:

Von Minden lives in Florida – in “Hurricane Alley.” “We’re hurricane people,” she said. “It’s price gouging … price gouging at its best. It would have been my daughters’ first concert for both of them, and we were looking forward as a family to going, and we can’t,” she said.

‘Hurricane People’? Never have I seen such weird victimhood and sense-of-entitlement thrown together so willingley. This woman is, surely, aware that she is, in one move, stigmatising her entire community. Surely. Are the rest of us to take special care of them, now, murmuring to one another, “they’s hurricane folk.” Fuck me. Plus, they’re called cyclones.

I’ll give her an mp3 of Kennedy’s inaugural address, and she can put that money towards getting the hell out of “Hurricane Alley”, if it’s that big a deal.

Experts say Disney and the Hannah Montana franchise are victims, too, but they see nothing that will hurt the Disney brand. Billy Ray Cyrus, Miley’s dad, has commented on the issue.

“There is a law of supply and demand, and … quite frankly, it’s beyond our control. We put together a concert tour, and I was really excited about Miley going out and playing for the fans,” he said. “That’s what her tour is about. It’s for the kids and all the families that are watching Hannah Montana.”

Nothing that will hurt the Disney brand. Here’s how it works:

Suppose there is a tour coming to down. One show, in a stadium with 20,000 seats. The fixed supply of tickets will look something like, say, this

Tickets market

Neo-classical notions of rationality suggest that the efficient price – clearing the market exactly, no waste, no fuss – is $140. The people whose willingness to pay for a ticket is that or greater will get tickets. Done.

This, however, is something that will hurt the Disney brand. Disney does not want to piss off the legion of fans whose parents will have a conniption over that sort of ticket price. We would, as consumers, rather have a $63 ticket price and a shortage of 20,000 tickets, than a price of $140 and a market that clears efficiently. We will not blame Disney if we miss out on tickets that we could afford. We will blame Disney if we miss out because we couldn’t afford the tickets. E.g.

Promoters and artists have tried different methods to recoup lost revenue.

For the Hannah Montana tour, AEG Live and Ticketmaster held an auction for tickets in some cities. But the auction, AEG concedes, was not for the average fan. The minimum bid for a single front-row seat at the Target Center in Minneapolis, Minnesota, was $2,605.

You don’t say.

Non-price rationing

This leads to what we call non-price rationing. Think health care. Australia and the UK have universal health insurance/provision. So there is no price rationing (conditions apply). There is, however, a waiting time for surgery, etc. This is non-price rationing.

Remove the internet from ticket sales, for a second – think of the new iPhone. Who got the first iPhone? People who lined up first, i.e. for the longest. People with the highest willingness-to-pay in terms of time, rather than in terms of money. The product is still in fixed supply: it will still be rationed. It is rationed according to something distributed more equally (conceptually, at least) than mere money, and we’re happy. If you are short on time but long on money, some people will wait for an iPhone, and then sell it to you on the secondary market.

Now, add the internet back in. What happens? Waiting times have disappeared. There is no non-price rationing. In fact there is no rationing whatsoever: the product will just run out in the first 2 minutes. So what had been a model for things like ticket sales has broken down. Not only are not missing out in a more democratic fashion, but the secondary market is perverted by the sheer scale of arbitrage-seeking scalpers (kindly referred to by CNN as brokers – God knows why).

The demand curve in the secondary market will be a lot more inelastic than in the primary market, and the prices paid (just like for the iPhone, PS3, etc.) will be a lot higher. The afore-mentioned auction pulled in top bids over USD2,000 – imagine what scalpers will pull in the tickets they’ve managed to steal out of the primary market.

Until something meaningful is managed – and, fair to say, promoters and labels are trying just about everything – this form of non-price rationing (Broker-rationing?) will pretty much remain, whatever it is. The supply of tickets will always be fixed. If the show is popular (sorry. K-Fed) it will always be less than the total demand, so the supply will always be rationed, one way or another. Odds are whatever your willingness-to-pay, or even ability-to-pay, many people will be able to surpass that.

Seriously, though. Hurricane People?


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