Internet Technology and its Role in the Price of Concert Tickets

Internet Technology and its Role in the Price of Concert

Tickets

By Sara Fisher Ellison

∗

The price of tickets for live music performances has increased

markedly over the past few decades. While many explanations

have been proﬀered by academics and the popular press, the ef-

fect of internet technologies on ticket prices might be underappre-

ciated. I examine the market for concert tickets through the lens

of academic literature on ecommerce and discuss how some of the

ﬁndings therein may be relevant.

Rapid increases in the prices of concert tickets over the past couple of decades

have not gone unnoticed, by the popular press,

by academic economists, and

especially not by the concert-going public. In a 2013 address at the Rock and

Roll Hall of Fame, economist Alan Krueger oﬀered the following documentation:

(Ticket price increases, by the way, have continued to outstrip inﬂation since

2013.) Connolly and Krueger (2005) discussed a number of factors behind this

marked increase, and other commentators have added their two cents. One of

the leading explanations has been the demographic shift in the concert-going

∗

MIT, [email protected]. I gratefully acknowledge the outstanding assistance of William Hegelmeyer,

Deekshita Kacham, Tingyi Lu, Krista Moody, and James Simon.

“Concerts Are More Expensive Than Ever, and Fans Keep Paying Up,” Bloomberg.com, September

10, 2019. “Why are Concert Tickets So F****** Expensive?,” MELMagazine.com, 2020.

2 JANUARY 2021

public: the “graying” of rock and roll. High-income 50- and 60-year-olds were

rarely attending big-name rock and pop concerts in the 1970’s. Today, they are

a large fraction of the rock-concert-going population. Some commentators have

also pointed a ﬁnger to the consolidation in the markets for promoters, ticket

brokers, ticket sales platforms, and venues. In fact, Live Nation, which merged

with Ticketmaster in 2010, now controls 80% of the primary ticket market for

musical events, is the largest concert promoter, and owns over 200 venues. Stub-

Hub commands a dominant position in the secondary ticket market, controlling

more than half of it, with Ticketmaster (Live Nation) being the second highest

volume platform.

Concentration in these markets has not always been so high:

think about the thousands of ticket brokers and scalpers in the pre-internet era,

none of whom had a dominant position in the secondary market. Exertion of

market power in any of these markets could lead to higher ticket prices. Finally,

a technology-based explanation has been proﬀered by many, probably Connolly

and Krueger’s preferred explanation: a shift from using live performances as a

loss-leader for record sales to the opposite, using recordings to advertise live per-

formances. (As we will note below, this shift did not occur exogenously but was

rather driven by technological advances.)

This short paper will oﬀer two other possible, technology-driven, explanations,

both of which focus on the role of internet technology in ticket purchasing. First,

though, let me start with a brief chronology.

I. A Short History of Technology and the Music Industry

The structure of the music industry has been materially shaped by the state

of technology over the past two centuries. The ﬁrst economic revolution oc-

curred when technology allowed the commercialization of recorded music. Al-

though a few musical recordings existed as early as the 1860’s, Edison is believed

to have made the ﬁrst attempt at commercialization in 1888, selling toys with

recorded lullabies.

As technology improved and networks of playback devices

proliferated—ﬁrst phonographs, then record, tape, and CD players—the struc-

ture of the industry responded. Technology gave artists the possibility of making

signiﬁcant revenue oﬀ of recordings, which were also relatively easy for artists

to produce at large scale. The live-performance-based model which had always

existed gave way to one where sales of recordings were the primary source of

revenue for many artists.

Recordings and live performances could function as complementary goods for

at least some fans. For instance, an album purchase could introduce a fan to some

new music that she would like to hear live, resulting in the purchase of concert

“The Ticket Monopoly is Worse Than Ever (Thanks, Obama),” The New Republic, May 15, 2018.

The attempt was not commercially successful, in part because the technology did not yet exist to

make multiple copies of a single recording. A diﬀerent recording of a diﬀerent performance had to be

made for each toy. “Early Talking Doll Recording Discovered,” www.nps.gov

See Wikstr¨om (2009).

tickets. Or, alternatively, a fan could purchase a concert ticket for his favorite

band and then feel compelled to buy the new album to acquaint himself with the

music that will be played at the concert. Because of this complementarity, live

performances persisted, but often as an advertising vehicle for the recorded music.

As such, simple loss leaders models would predict low ticket prices, perhaps even

below marginal cost. Mortimer, Nosko, and Sorensen (2012) provide empirical

evidence of this complementarity.

More recently, we have experienced another sea change in how music is pro-

duced, recorded, listened to, stored, and shared, driven by a new wave of techno-

logical innovations. In the late 1980s, a German consortium Fraunhofer-Gesellshaft

set out to develop a ﬁle format that would allow for compression of audio ﬁles for

eﬃcient storage and transfer over phone lines. They received a patent in 1989 for

what would become known as the MP3 ﬁle format and introduced it in 1994.

addition to vastly decreasing the cost of storing and sharing music, the format also

made it diﬃcult or impossible for artists to control the use of their recordings, or,

as a result, be able to monetize them in any substantial way.

For instance, this

technology enabled websites such as Napster to introduce online music sharing

outside of the constraints of the copyright system. At its peak, Napster users were

downloading 14,000 copies of songs every minute and not paying any royalties.

It was run out of business by a series of copyright infringement lawsuits, but the

barn door was open. Even with Napster gone, illegal piracy of music has persisted

(although at smaller volume

The ease with which songs could be shared or downloaded has disciplined the

price that legal downloading and streaming services such as iTunes and Pandora

could charge. As a result, many artists have turned to live performances as the

basis of their revenue model—in some sense reverting to the pre-modern economic

model—but with other new technologies mediating the market for tickets now.

Instead of purchasing tickets at a single physical location, typically the venue, we

now not only transact online but also learn about upcoming events, read reviews,

and perform searches and comparisons, both across events and across types of

tickets within an event.

The music industry has been extensively studied by the economics profession. I

cannot hope to oﬀer an exhaustive list, but I mention a few of the more interesting

and important analyses, which I have not cited elsewhere, here. Oberholzer-Gee

and Strumpf (2007) estimate the eﬀect of the erosion of copyright protections on

record sales, and Waldfogel (2012) goes a bit further to examine the eﬀect of that

erosion on music innovation and quality. Leslie and Sorensen (2014) analyze a

model of the interaction between primary and secondary ticket markets for rock

“MP3,” Wikipedia.org.

Again, see Wikstr¨om (2009). See, also, Shiller and Waldfogel (2011) for an analysis of alternative

pricing strategies for digital format recordings.

“Napster Turns 20: How It Changed the Music Industry,” bbc.com, May 31, 2019.

“Music Piracy,” Wikipedia.com.

4 JANUARY 2021

concerts and estimate that the secondary market does improve allocative eﬃciency

but also incentivizes costly rent-seeking, which partially oﬀsets the increased ef-

ﬁciency. Finally, Krueger’s 2019 book entitled Rockonomics is a comprehensive

look at many economic aspects of the popular music industry.

II. Add-on Pricing and Obfuscation

At the turn of the millennium, online retail was widely heralded for its potential

to be a powerful price search and comparison tool. Consumers could, with a few

clicks of a mouse, compare products from diﬀerent vendors, inducing strong com-

petition and low margins. This potential was never realized in many markets, and

Ellison and Ellison (2009) argued that online technologies can also aid vendors

and make it cheaper and more eﬀective for them to thwart price search through

various obfuscation strategies. We looked speciﬁcally at the practice of add-on

pricing—ﬁrms oﬀering upgraded versions or accessories, or even hiding various

required fees, so that price search for the base item becomes less eﬀective. We

showed that in the market for online computer components, obfuscation strate-

gies were employed and were eﬀective in raising margins and proﬁts, relative to

Bertrand-like competition that obtained for easily-searched-for products.

The online market for concert tickets diﬀers from the market we initially stud-

ied in a few ways. First, tickets to concerts are much more diﬀerentiated than

generic computer memory modules—a front row ticket to Taylor Swift in the

Meadowlands is not the same as a ticket for Darlene Love in the second balcony

of Medford’s Chevalier Theater (although I would enjoy both, I imagine). Second,

there is an active secondary market in concert tickets. Third, the market struc-

ture and role of the purchasing platform diﬀers in the two cases. For computer

components, we studied a market segment characterized by many small vendors

who listed their products on an independent price search engine. In the primary

ticket market, the dominant price search engine, Ticketmaster, is also vertically

integrated into venues and concert promotion. Although these diﬀerences are all

important (and worthy of deeper study), we would not expect them to eliminate

the incentives that sellers have to obfuscate, and we would also expect similar

tools to be available to them as are used in other online markets.

Because tickets are a diﬀerentiated product, we might expect the incentives to

obfuscate could be dampened but not eliminated. The main diﬀerence we might

expect between the market for tickets and the one studied in Ellison and Ellison

(2009) is that an independent price search engine might have an incentive to

mitigate obfuscation, so that its service remains valuable. A vertically-integrated

platform may not have such an incentive, and may, in fact, want to facilitate and

engage in obfuscation. In other words, the fact that Ticketmaster is engaged in

other related markets could give them strong incentives to allow and encourage

Ellison and Ellison (2018) provide a broader and more policy-focused discussion of the issue of price

obfuscation.

obfuscation on their platform.

Finding examples is not diﬃcult. Tickets bundled with amenities such as

backstage experiences, selﬁes with the artists, VIP parking, private bars and

restrooms, and exclusive concert swag are proliferating.

Furthermore, many

major ticketing platforms add extra fees onto the purchase price, which are not

disclosed in the initial stages of the purchase, where price comparisons between

diﬀerent seats, shows, or platforms are most easily made. Here is a typical exam-

ple from a leading ticketing platform, where the fees announced only at checkout

increase the ticket price by 20%.

The welfare consequences of obfuscation practices like hidden fees and add-on

pricing are clear: they are employed to raise proﬁts and they will hurt consumers

to the extent that they are eﬀective. Even if consumers are willing to pay extra

for premium services bundled with their tickets, the fact that those bundles exist

makes price search less eﬀective and raises ticket prices in equilibrium.

In 2013, we received interesting insight into the eﬀects of price obfuscation

when StubHub decided to unilaterally switch to an all-in pricing model for their

tickets. In other words, all required fees were included in the posted price from

the beginning of the transaction. They abandoned the experiment after less than

two years when their analytics indicated that they had lost signiﬁcant revenue

“A Front Row Seat To Go? Rock Fans Pay for Perks,” The New York Times, May 22, 2010.

6 JANUARY 2021

from their unilateral transparency.

Blake et al (2018) provide yet more evidence

on the equilibrium eﬀects of price obfuscation in this market.

III. Variety and Match Quality

As I noted in the previous section, concert tickets are a highly diﬀerentiated

product. That fact could lead to a dampening of the incentives to obfuscate, since

the ability to search prices and make comparisons is less likely to lead to product

substitutions in a diﬀerentiated product market. This diﬀerentiation brings an-

other internet technology into clearer relief, though. That is the internet’s ability

to facilitate high-quality matches between consumer and product.

Let me illustrate with a personal anecdote. In the pre-internet era, I lived in a

neighborhood outside of Boston called Davis Square. On my way to and from the

subway every day, I passed two music venues, The Somerville Theater and a club

called Johnny D’s Uptown. I would see what acts were being advertised on their

marquees and would occasionally stop in to buy tickets to a show. I often did

not know much about the shows—perhaps something about an advertising poster

out front piqued my interest. Or maybe I had read about one of the acts in The

Boston Globe. Not surprisingly, some shows ended up matching my preferences

well and others did not.

During the time I lived in Davis Square, I mostly saw

shows at those two venues. Now, of course, the schedules for music venues all

over the Boston area are at my ﬁngertips, just a few clicks away. I am also on

certain email lists, alerting me to shows of potential interest that are coming to

town. And ﬁnally, it is simple for me to read reviews, listen to music clips, and

otherwise research musical acts that might interest me. Those technologies should

lead to a better match quality between my preferences and the shows to which I

buy tickets. In the presence of this better match quality, I could be paying higher

prices for tickets but still enjoy increased welfare.

This basic idea—that the internet can facilitate high-value matches between

buyer and seller that would have been diﬃcult to consummate otherwise—is

studied in Ellison and Ellison (2019), in the context of the used book market.

We note there that 1) the internet can provide eﬃcient price comparison in-

formation, which can put downward pressure on prices and 2) the internet can

facilitate these high-value matches, resulting in consumers having higher willing-

ness to pay, putting upward pressure on prices. It is an empirical question which

eﬀect will dominate. In fact we ﬁnd that the prices of used books online are

typically signiﬁcantly higher than the same titles in the same condition found in

brick and mortar stores, with the eﬀects varying over the distribution of prices.

It is important to emphasize that the welfare consequences of high prices in such

“StubHub Gets Out of All-in Pricing,” The Wall Street Journal, August 31, 2015.

Seeing the then-“Dixie Chicks” at a 300-person bar was deﬁnitely a high-quality match.

It is easy to believe that consumers’ information about music that would match their preferences

would be far from complete. Hendricks and Sorensen (2009) provide evidence of this incomplete infor-

mation while studying the skewness of music purchases.

a setting can be very diﬀerent from what we might often assume: both sellers and

buyers can beneﬁt because the internet is facilitating a more eﬃcient allocation

of tickets to buyers given their preferences.

There is good reason to believe that such an eﬀect could be at work in the mar-

ket for concert tickets. My anecdote, as well as reader introspection about ticket

purchasing, might be somewhat persuasive, but we can also draw close parallels

between the structure of the market for used books and the secondhand market

for concert tickets. Diﬀerent tickets to the same event are analogous to diﬀerent

copies of the same title—within events, tickets should be quite close substitutes,

across events not as much. Furthermore, there are parallels in the two market

structures: there are many owners of tickets and used books that would like to

resell, many potential buyers, and a few platforms that exist to help facilitate the

matches between them. Also, in the secondary market for tickets, similar to that

for used books, there are a small number of dominant platforms. Here, the two

biggest platforms are StubHub and Ticketmaster. Ticketmaster is, in addition,

a large player in the primary market, the promotion market, and the market for

venues. (Note that the used book market used to have a number of platforms,

but consolidation has resulted in a small number of dominant platforms, led by

Amazon, which, like Ticketmaster, is integrated into other related markets.)

Another feature of the used book market that is echoed (imperfectly) in the

market for concert tickets is the ﬁxed supply. The ﬁxed supply of used copies of

a particular title is an important factor driving the price of the products up as

more high-value customers arrive. A similar, but not as extreme phenomenon,

happens for concerts. In the short run, concert venues and dates are set, and

capacity is ﬁxed. In the longer run, though, promoters could have ﬂexibility on

these dimensions.

Note that I have discussed this benign explanation for rising prices—that the

internet is facilitating better and more eﬃcient matches—mostly in the context

of the secondary market because of its similarity to the used book market. There

is reason to believe that higher value matches could also be a driving factor in

price increases in the primary market, although further analysis could make that

argument more convincing.

Finally, let me mention one factor that diﬀerentiates concert tickets from used

books and computer memory modules, the fact that they are highly perishable

and that their value goes to zero after the event occurs. This characteristic of

the ticket market has led to interesting studies of pricing dynamics as events

approach (for instance Sweeting (2012)). It should not, however, mitigate the ef-

fects that we have discussed here. If anything, the time sensitivity of the purchase

should exacerbate these eﬀects, making obfuscation techniques more eﬀective and

enhancing the beneﬁts from fast, eﬃcient means to locate high-value matches.

8 JANUARY 2021

IV. Conclusion

It is undeniable that many factors have fed into the marked increase in con-

cert ticket prices that we have seen in recent years. There are a number of

causes that have been highlighted by others, but my goal was to underscore two

technology-driven factors that might be underappreciated, price obfuscation and

improved match-quality. Both have been studied and documented in the context

of e-commerce more broadly and likely played important roles in the market for

concert tickets as that market moved online. It is important to emphasize that

those two explanations oﬀer very diﬀerent welfare implications. Price obfusca-

tion is employed to raise prices in equilibrium and, as a result, harms consumers.

Improved match quality between the ticket and the purchaser’s preferences can

result in higher equilibrium prices but where both parties are actually better oﬀ.

The economic fortunes of artists, producers, promoters, ticket brokers, and

consumers of live and recorded music are inextricably tied to the technologies

that mediate the industry. Although I do not foresee that fact changing, the

technologies themselves are evolving rapidly, laying the groundwork for more

seismic shifts in the industry. Technology to tie tickets to a particular purchaser,

thereby shutting down the secondary market, has started to gain traction.

And

the pandemic of 2020 has hastened the implementation of technologies that seek

to provide something like a live concert experience but with remote delivery over

the internet.

These, and other technologies that we cannot yet foresee, will

likely shape the industry, and the economic fortunes of market participants for

decades (or centuries) to come.

Organizers of sporting events have, perhaps, been more enthusiastic than concert promoters in

embracing mobile ticketing, with the Miami Heat, for instance, going to mobile-only in 2017. See “Miami

Heat Become First NBA Team With Mobile-Only Entry,” ESPN.com, August 10, 2017.

London-based ticket broker DICE, has been a leader in embracing both technologies, selling exclu-

sively electronic tickets and, now, pivoting forcefully into live-streams. In a diﬀerent approach to provid-

ing a pandemic-inspired alternative to live shows, start-up Oda has introduced purpose-built handmade

wooden speakers coupled with subscriptions to exclusive live events to be narrowcast over them.

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