Top 2 Ways to Beat Ticket Scalpers: Supply & Demand
We’ve all been there before. It’s Thursday morning and you realize that your favorite band or sports team is playing on Saturday. But tickets are long sold out and all that’s left is the unappealing option of paying a hefty premium to a ticket scalper.
I mean, er, ticket broker.
Kidding aside, the resale ticket market is booming. Northcoast Research recently estimated that this secondary market is moving north of $5 billion.
One reason is that to appear more fan-friendly, recording artists such as Metallica, The Chainsmokers, Jimmy Buffett and Green Day have been reducing the cost of their concert tickets well below market value. While seemingly good-natured, by making their tickets less expensive, they are allowing ticket brokers to capture much of the revenue without bringing lower prices to a majority of fans.
This occurs when ticket brokers take advantage of these lower prices and limited supply to buy concert tickets in bulk, and then resell them to fans at astronomical mark-ups.
During a recent consulting project for a major recording artist, we were tasked to come up with a solution for the second leg of her U.S. tour that would keep lower-priced tickets in the hands of her fans, while reducing the ability of brokers to acquire these seats.
During the first leg of her tour, our client charged $75 for every seat, regardless of location. This was well under market value. Brokers acquired a majority of the seats and marked them up to over 200% of face value. By pricing her shows under market value, our client was inadvertently doing herself a disservice as brokers captured the excess revenue through scalping.
After careful consideration, we offered a three-fold solution: first, we had our client increase the amount of her shows being offered on the second leg of her tour. This enabled us to increase the supply of tickets, ensuring that low-priced tickets would always be available to fans; second, we reserved a number of higher priced tickets for sale (‘VIP’ seating ranging from $95-$200); and third, we offered all tickets as paperless and instituted an ID system for ticket purchases to further exclude brokers.
The result was a relatively sold-out tour and virtually no broker involvement.
This strategy worked due to the law of supply and demand. Simply, excess demand occurred on the first leg of the tour because tickets were priced at $75 apiece. Since this price didn’t reflect true market value, the quantity demanded exceeded the quantity supplied and a shortage was created. After the entire quantity of tickets supplied was sold at $75 apiece to fans and brokers, demand still remained at various price levels which were above the $75 mark.
Ticket brokers, taking advantage of this low price and limited inventory, responded to this remaining demand by raising the price of tickets to market-clearing levels, capturing revenue that could have gone to our client.
By increasing the supply of tickets, we created a new ticket price equilibrium where market value now equaled face value.
In addition to these supply and demand effects, we also employed price discrimination by creating a two-tiered pricing schedule (VIP and general seating). This allowed our client to capture extra revenue as fans self-selected their seats within these two tiers. We knew that fans had different elasticities of demand, but we were unable to separate those elasticities. We therefore presented a price schedule, making sure that we marketed the new VIP seats as more exclusive. This helped us to distinguish among groups of buyers.
This sort of price discrimination was achievable because our client met three specific conditions: she was the price maker for the second leg of her tour; we identified at least two groups who were willing to pay different prices (low price seats (high elasticity) v. VIP (relatively inelastic)); and utilized paperless tickets and an ID system that prevented buyers in one group from reselling tickets to the other.
In this way, she was able to charge each group what they were willing to pay.
Overall, winners included the fans that were able to see more concerts than usual, and for a majority of them, at a reduced price. And our client, who happily recaptured revenue from the brokers. Losers were the brokers, who suffered from reduced access to tickets and from us eliminating the difference between the market and face values of the tickets.
Our takeaway from this experience was that to reduce scalping, you should charge a more accurate price in the first place.
Now it’s time to order those tickets!