Imagine a concert ticket goes on sale for $120. Within minutes, every seat is gone. A few hours later, tickets for the exact same concert begin appearing on resale websites for $400, $700 or even $1,000. If almost any ordinary company experienced this, the conclusion would seem obvious: the product was priced too cheaply. Yet this pattern occurs repeatedly in the live entertainment industry. Major concerts sell out almost instantly while resellers earn hundreds of dollars on tickets they purchased only moments earlier. Economists have studied this puzzle for years because it raises a surprisingly difficult question. If artists know that consumers are willing to pay far more, why not simply charge them more in the first place?

Concert tickets are particularly interesting because their supply is extremely difficult to increase. A stadium with 60,000 seats cannot manufacture another 100,000 seats when demand suddenly rises. For one artist, one venue and one night, supply is essentially fixed. Imagine 50,000 tickets are available. At $100, perhaps 500,000 people want one. At $250, perhaps 150,000 remain interested. At $600, demand might finally fall close to the 50,000 seats available. In a simple economic model, the ticket price should rise until the quantity consumers demand roughly equals the number of tickets supplied. Instead, many concerts deliberately sell at prices where demand enormously exceeds supply.

When price does not ration a scarce good, something else has to. In ticket markets that might mean online queues, presale codes, lotteries, fan registrations or simply being lucky enough to enter the website at the correct second. But low prices also create a valuable opportunity for another group: resellers. If someone can purchase a ticket for $120 that another consumer is willing to buy for $600, there is a $480 gap waiting to be captured. This is partly arbitrage, since the reseller profits from a difference between the ticket's price in the primary market and its value in the secondary market. It can also encourage rent-seeking, because individuals spend time, money and technology competing to obtain access to tickets without creating any additional seats or improving the concert itself.

Economists Phillip Leslie and Alan Sorensen studied this problem using data from primary and secondary markets for major rock concerts. They found that resale was not entirely economically wasteful. It allowed tickets to move from consumers who valued them less toward consumers who were willing to pay more, increasing allocative efficiency by about 5 percent on average in their model. But there was a catch. Roughly one-third of that improvement was offset by transaction costs and costly efforts by consumers and brokers to obtain underpriced tickets in the original sale. The resale market can therefore correct one inefficiency while simultaneously creating another.

This makes the artist's original pricing decision even stranger. If a ticket will eventually sell for $600 anyway, why let a broker buy it for $120 and keep the difference? Economists Aditya Bhave and Eric Budish describe ticket underpricing as a long-standing economic puzzle because it reduces potential revenue while encouraging socially costly competition among brokers. They studied Ticketmaster's experiment with auctioning tickets rather than selling them at fixed prices. The auctions largely succeeded in eliminating the arbitrage profits produced by underpricing, yet the system still failed to become widely popular. Economically, the mechanism worked. The fact that the market did not simply adopt it suggests that artists and consumers care about something beyond finding the highest possible ticket price.

One explanation is that an artist is not selling only a seat. They are selling part of a much longer relationship with a fan. Someone attending a concert today may stream the artist's music for years, buy merchandise, attend another tour and encourage friends to listen. Maximising revenue from tonight's ticket may therefore be different from maximising the value of that customer relationship over time. There is also the question of who actually ends up inside the stadium. If the market-clearing price is $700, a wealthy casual listener may comfortably pay it while a student who has followed the artist for ten years cannot. Economists often use willingness to pay as an indication of how much consumers value something, but willingness to pay reflects both desire and ability to pay. The person willing to spend the most money is not necessarily the person who cares the most.

That distinction may be particularly important for concerts because the consumers themselves help create the product. A crowd filled with enthusiastic fans who know every lyric produces a different atmosphere from a crowd consisting largely of people who happened to have the highest incomes. Keeping some tickets relatively affordable may therefore have value to the artist even if those tickets could have been sold for more. It can also preserve the perception that attending a concert remains accessible to ordinary fans. In that sense, selling below the maximum possible price may function almost like a marketing investment. The artist sacrifices some immediate revenue in exchange for goodwill, loyalty and the type of audience they want to build.

The problem is that the artist cannot guarantee who receives that benefit. Suppose a fan would happily pay $500 for a ticket, but the artist sells it for $150. If that fan manages to buy it directly, they receive $350 of consumer surplus, the difference between what they were willing to pay and what they actually paid. The artist has effectively left some value with the consumer. But if a professional reseller purchases the ticket first and resells it to the same fan for $450, almost all of that consumer surplus disappears. The artist still receives only $150, the fan still pays close to market value, and the reseller captures most of the difference. Underpricing intended to benefit fans can therefore end up benefiting intermediaries instead.

This helps explain the increasing use of market-based pricing, where some ticket prices move according to demand. Ticketmaster says event organisers, rather than Ticketmaster itself, set the face value and decide their pricing strategy based on factors including venue size, production costs and demand. The company has also argued that pricing tickets closer to their market value can allow artists and event organisers to capture revenue that would otherwise flow to resellers. From a conventional economic perspective, this makes sense. If consumers are ultimately going to pay $500 for the ticket, allowing the artist to collect that money seems more logical than allowing a broker to collect it.

Yet consumers often dislike dynamic pricing because they do not judge prices using supply and demand alone. They also have expectations about fairness. A fan who expects a concert ticket to cost $150 may feel exploited when heavy demand suddenly pushes the price to $500, even if thousands of other people are demonstrably willing to pay that amount. This is where the economic concept of a reference price becomes important. Consumers develop an idea of what a product should cost based on previous purchases, advertised prices and social norms. A price can therefore be economically efficient while still feeling unfair. For an artist whose brand depends heavily on emotional attachment and loyalty, that reaction has an economic cost of its own.

Concert pricing therefore becomes a battle over who captures the value created by scarcity. If the ticket is priced cheaply and reaches a genuine fan, the consumer receives much of the surplus. If it is priced cheaply but acquired by a broker, the reseller captures it. If the artist raises the price closer to what the market will bear, more of the value flows back to the artist, but lower-income fans may be excluded and perceptions of fairness may suffer. There is no pricing mechanism that simultaneously maximises revenue, eliminates scalping, guarantees access for devoted fans and leaves everyone feeling that the outcome was fair.

Perhaps that is why concert tickets are so much more interesting than an ordinary supply-and-demand graph suggests. The market is not simply trying to decide what one seat is worth. It is trying to use one price to accomplish several different goals at once: allocate a scarce product, reward the creator, preserve consumer surplus, discourage resellers and maintain a relationship between artists and fans. The strange part may therefore not be that some concert tickets are sold too cheaply. It may be that the economically "correct" price depends entirely on what we believe the price is supposed to achieve.

Sources

  • Phillip Leslie and Alan Sorensen, "Resale and Rent-Seeking: An Application to Ticket Markets," The Review of Economic Studies — academic.oup.com
  • Aditya Bhave and Eric Budish, "Primary-Market Auctions for Event Tickets: Eliminating the Rents of 'Bob the Broker'?," National Bureau of Economic Research — nber.org
  • National Bureau of Economic Research, "Performance Ticket Auctions: Going, Going, Gone" — nber.org
  • Ticketmaster, "How Are Ticket Prices and Fees Determined?" — help.ticketmaster.com
  • Ticketmaster Business, "Statement on Returning Value to Artists" — business.ticketmaster.com