The Daily Swarm

According to an economic research report issued last week by the Richmond branch of the Federal Reserve Bank, it’s all about supply and demand:

The ticket company didn’t inflate the price; the forces of supply and demand did. Yes, it may be unfortunate that some little girls won’t be able to see Miley Cyrus (the real name of the performer who plays teenybopper Hannah Montana) in concert. The more fundamental issue is that promoters of the Hannah Montana series apparently haven’t priced tickets commensurate with demand, opening the door to a secondary market with much higher prices.

“If the promoters are deliberately setting prices low, it seems to me they’re just enriching the scalpers,” says Stephen Layson, an economics professor at the University of North Carolina, Greensboro. “Parents are objecting to the fact that they have to pay such high prices. But my opinion as an economist is that it’s just supply and demand. When supply is very limited and demand is very great, then the market clearing prices are going to be very high. That may seem outrageous but nobody is forcing you to buy your tickets.”

The suggested solution? Ticket rationing.

Why wouldn’t “Best of Both Worlds” promoters — the company selling the tickets for the Hannah Montana tour — want to capture the fullest amount of surplus valuation for tickets? In this case, it may be a simple matter of PR. It simply wouldn’t look good to charge 8-year-old fans $200.

Not long ago, this problem might have been eased somewhat. Concert tickets used to be sold at box offices, requiring people to physically stand in line and wait their turn. This is the classic “rationing by queues” economics solution to doling out scarce resources. It gives the tickets to those who would gain the most utility in having them, to those willing to give up a few hours or more waiting in line. Scalpers weigh the financial benefits of spending their time in line for the expected (but not certain) payoff in the secondary market versus using this time for other profitable endeavors.

Many will decide queuing up is not worth it. A better solution, one that doesn’t impose the extra expense of forcing people to stand in line, might be a sort of auction. One version would be a system in which a certain number of seats are auctioned off to the highest bidders, with the remaining ones sold for a flat price. This aids the promoter in not over- or underpricing tickets beforehand and more closely mimics a true market for high-valued seats.