After ticket prices for Oasis’s reunion tour more than doubled while fans queued, Sir Keir Starmer, the UK prime minister, said “this isn’t just an Oasis problem, this is a problem for tickets for all sorts of events. … we’ll make sure that tickets are available at a price that people can actually afford.”—Source, The Times, September 2, 2024.
On August 31, 2024
Oasis concert tickets went on sale at 9:00 GMT. Ann, in Rye, New York, set her alarm for 3:30 EST (8:30 GMT) to join a queue. At 8:30 EST, she finally made it behind 431,432 people.
The initially advertised ticket price was around £150 ($200) but on StubHub, the lowest price ticket was £783 ($1,000).
What is dynamic pricing?
Dynamic pricing is the use of information technology to adjust prices in response to changes in supply and demand. Its main use is in markets in which fluctuations in demand creates a shortage or a surplus, like the markets for rides and air travel.
Dynamic pricing is also used to find the equilibrium price in a market with a fixed (perfectly inelastic) supply, like concert tickets.
Figure 1 illustrates the global market for Oasis concert tickets.
The supply curve S, is vertical at the capacity of the venues, expected to be 1.4 million world-wide.
The demand curve, D, shows that at a price of $200 per ticket, 2.1 million people want a ticket and a long queue forms online. StubHub finds the equilibrium price at $1,000 per ticket.
What are the alternative resource allocation methods that could be used for concert tickets?
Concert tickets are a scarce resource, so some method must be used to decide who gets them. Three possible resource allocation methods are:
- Market price
- First-come-first-served
- Lottery
Market price allocates tickets to those willing to pay the price that makes the quantity demanded equal the quantity supplied as shown in Figure 1.
First-come-first-served allocates tickets to those arrive at the concert venue first or who join the online queue first and a lottery allocates tickets to those who get lucky.
Both of these allocation methods leave people willing to pay more to get a ticket.
Is a fixed price set below the equilibrium price efficient?
A fixed price set below the equilibrium price is not efficient, and Figure 2 shows why.
If the price is set at $200, and tickets are allocated first-come-first-served or by lottery, most of the late arrivals or unlucky are willing to pay more than the set price and enjoy a consumer surplus. Consumer surplus is large, and producer surplus is small, but a loss of consumer surplus arises because those willing to pay most don’t get the tickets they are willing to pay for.
Is dynamic pricing efficient?
Dynamic pricing is efficient, and Figure 3 shows why.
If StubHub sets the price at $1,000, tickets are allocated to those who value them most. Consumer surplus becomes the area under the demand curve and above $1,000. Deadweight loss is avoided because those willing to pay most get the tickets. But at a price of $1,000, consumer surplus is smaller than when price is $200. Producer surplus increases from $200 to $1,000 per ticket, an increase that exceeds the decrease in consumer surplus.
Is dynamic pricing fair?
Whether the outcome in Figure 3 is fairer than that in Figure 2 depends on the criterion of fairness used. There is no clear answer to this question.
Now take a short quiz to ensure you understand what you just read.