Allocation of Resources, Fare Thee Well, Jerry Garcia, Mark Perry, Risk managment, Secondary markets, Soldier Field, The Grateful Dead, Ticket Scalping
I have been a fan of The Grateful Dead since I was a teenager and have seen the band perform somewhere around 35 times prior to Jerry Garcia’s death in 1995 … I actually lost count. This summer, the four surviving original band members, along with some prominent guest musicians, will perform three reunion shows over the July 4th weekend at Chicago’s Soldier Field. They have said that this will be their last performance together.
Demand for tickets was so high that it surprised the band and the promoter. In January, an initial mail order tallied about 65,000 orders for more than 350,000 tickets, far more than the mail-order allotment and the stadium capacity for three days. On-line requests went mostly unfilled as the system was swamped when tickets went on-sale. Chicago Bears season ticket holders had the right of first refusal on a large number of tickets, which is unfortunate given the probable extent of the intersection between Bears fans and the set of Deadheads. And so there is a problem of scarcity and excess demand, a common occurrence for big concerts and sporting events.
Naturally, a secondary market has arisen to allocate the limited supply of tickets available from brokers and other willing sellers. However, as noted at the links above, asking prices on outlets like StubHub, often well above $1,000 per ticket, have shocked observers. Few transactions will actually take place at those prices. Repricing will occur until enough willing buyers are found. Nevertheless, many “Deadheads” are outraged. There are complaints on Facebook from self-righteous Deadheads, boasting of their honor as music fans and condemning the “greed” of resellers. Needless to say, some of the resellers are, in fact, lucky Deadheads who, having landed tickets, now find the prospect of a pecuniary gain from a resale just too good to pass up!
I am very much in favor of a free secondary market and so-called “ticket scalping.” First and foremost, these transactions are voluntary. There is no coercion involved, just a willing buyer and seller who reach a mutually beneficial deal. A buyer will agree to pay a certain price only if that price is less than the subjective value they assign to the ticket. Of course, a potential secondary buyer would rather have been lucky in what amounted to a lottery for tickets. But if not, they are not shut out altogether. A little patience on the secondary market might bring prices well within reach.
Second, the allocative mechanism in play on the secondary market is little appreciated, but it contributes to social gains. Tickets will be allocated to those who value them most highly. In fact, individuals who value their own time most highly might avoid the time and aggravation of participating in the mail order or joining the on-line sales queue. Instead, these individuals know they can fall back on the secondary market to obtain seats, thereby conserving a valuable resource: their time. Some will contend that all tickets should be made available and allocated via some other, non-price mechanism, such as a lottery or a queue, whereby willingness to pay cash is rendered moot. Unfortunately, such mechanisms have severe drawbacks in the presence of excess demand: they tend to waste time for both the lucky and unlucky participants, they may allocate tickets to buyers who value them less highly, they infringe on personal liberty by preventing individuals from taking part in mutually beneficial exchanges, and they waste scarce law enforcement resources.
Another advantage of the allocative mechanism embodied in the secondary market is its ability to create value in the presence of risk. Performers and promoters are loath to price tickets optimally, partly because there is risk in doing so: damage to goodwill with their fan base and the risk that they will over-price tickets and possibly fail to fill the house. Secondary sellers will gladly accept pricing risk, and the frenzy surrounding an active secondary market can serve as a promotional device for performers. Moreover, by allowing tickets to be allocated to buyers who value them most highly, the venue and the community benefit by bringing in the most appreciative crowd, adding to the success and vibrancy of the local entertainment market. A prohibition on scalping closes off a convenient channel through which some of the most valuable customers can obtain seats to events. Here’s what one ticket market scholar states:
“… a curtailment of scalping markets would not only prevent allocation according to maximization of utility, it would also have the dynamic effect of reducing in the long term the supply of cultural events! This is very rarely mentioned, but following the adoption of an anti-scalping law in Quebec, industry experts have indicated that cultural centers like the Bell Centre in Montreal have reduced events and potential audiences by some 6% to 11%.”
Finally, the fact that prices are high on the secondary market implies great scarcity. The Grateful Dead may have aggravated the situation by stating unequivocally that these would be their last shows. They could have remained silent or vague on that point. But scarcity can be addressed in other ways by performers and promoters: they can agree to price the tickets more highly; they can arrange to perform more shows and appear at more venues; and they can create imperfect substitutes for the actual concert experience, such as providing live-feeds of the show to other venues, including live streaming.
In this case, the band has taken steps to alleviate the shortage. First, they have reconfigured the plan for the floor of the stadium to allow a larger crowd in a “GA Pit” (presumably standing room), and they are opening up the set and directing sound to accommodate seating behind the band. Second, they are discussing the possibility of providing high-quality, live feeds to other venues. This should help to take some of the pressure off prices in the secondary market.
My wish is that the band would also announce additional performances, either in Chicago or a few other cities. My mail order went out on the first day with an early postmark and it is still unanswered. My hopes remain high, but if I don’t get into the show, I’m sure to attend a viewing party!