Tag Archives: economics

The Secret Science of Ticket Scalping

8 Jun

I actually consider it more of an art than a science, but this is a nice synopsis on how ticket pricing drives scalpers:

Most concertgoers don’t usually consider ticket prices as incredibly low. After barely keeping up with inflation for decades, concert prices have risen wildly since 1996, or around the time when baby boomers, who helped start the industry, aged into a lot more disposable income. (It was also around this time that Internet piracy made the music industry more reliant on concert revenues.) These days, prices can seem incredibly high. Barbra Streisand, who charged more than $1,000 for some seats at a concert in Rome, inspired so much anger that she canceled the show. Yet to an economist, the very existence of scalpers and companies like StubHub proves that tickets are far too cheap to balance supply and demand. Pascal Courty, an economist at the University of Victoria, in Canada, who has spent the better part of 20 years studying the secondary-ticket market, has identified two distinct pricing styles. Some artists, like Streisand and Michael Bolton, seem to charge as much as the market will bear — better seats generally cost a lot more; shows in larger cities, with higher demand, are far more expensive, too. (If you want to catch Bolton on the cheap, head to Western New York.) The second group comprises notable acts, like Bruce Springsteen and Pearl Jam, that usually keep prices far below market value and offer only a few price points. An orchestra seat to see the Boss in Jersey costs only about $50 more than the nosebleeds in Albany.

Springsteen’s style might seem more altruistic, but performers who undercharge their fans can paradoxically reap higher profits than those who maximize each ticket price. It’s a strategy similar to the one employed by ventures like casinos and cruise ships, which take a hit on admission prices but make their money once the customers are inside. Concert promoters can overcharge on everything from beer sales to T-shirts, and the benefits of low-priced tickets can accrue significantly over the years as loyal fans return. In part, this explains why artists like Springsteen and Petty are content to undercharge at the gate while others, perhaps wary of their own staying power, are eager to capitalize while they can.

Regrettably, I once bought a ticket to a Red Sox game from a scalper that turned out to be a fake. These days I usually buy direct from source. I’ve had good luck with StubHub as well.

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On the Sky-High Racing Pigeon Market

21 May

The Associated Press reports on the lightning-fast pigeon named Bolt, who became the world’s most expensive racing bird when his Belgian breeder sold it for 310,000 euros ($400,000) to a Chinese businessman:

One-year-old Bolt, named after the Jamaican Olympic superstar sprinter Usain Bolt, and with an outstanding pedigree of proven champions to match, was the latest Belgian-bred pigeon to claim record prices. Yet the sums paid surprised anyone involved in the sport, auction house Pipa said. The previous record for a sale of a single bird stood at 250,000 euros ($322,000) from January 2012.

At a time when a crisis is holding Europe in an ever tighter grip, a feathered handful of prime fowl of some 450 grams (a pound) is reaching unparalleled levels. The full auction of the Leo Heremans coop, 530 birds in all, also yielded a world record of 4.345 million euros ($5.58 million) more than double the previous record from last year.

I had no clue there was a market in racing pigeons!
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(via @tylercowen)

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The Rationality and Virtue of Voting

5 Nov

An interesting post from Steve Randy Waldman on whether it makes sense to vote (and whether it is virtuous to do so). He invokes in an interesting analogy and moves on from there:

All of these arguments are right but wrongheaded. We don’t vote for the same reason we buy toothpaste, satisfying some personal want when the benefit outweighs the cost of doing so. Nor, as Winecoff and Arena effectively argue, can we claim that our choice to vote for one side and against another is altruistic, unless we have a very paternalistic certitude in our own evaluation of which side is best for everyone. Nevertheless, voting is rational behavior and it can, under some circumstances, be a moral virtue.

Let’s tackle rationality first. Suppose you have been born into a certain clan, which constitutes roughly half of the population of the hinterland. Everyone else belongs to the other clan, which competes with your clan for status and wealth. Every four years, the hinterland elects an Esteemed Megalomaniac, who necessarily belongs to one of the two clans. If the E.M. is from your clan, you can look forward to a quadrennium in which all of your material and erotic desires will be fulfilled by members of the other clan under the iron fist of Dear Leader. Of course, if a member of the other clan becomes Dear Leader, you may find yourself licking furiously in rather unappetizing places. It is fair to say that even the most narrow-minded Homo economicus has a stake in the outcome of this election.

Still, isn’t it irrational for any individual, of either clan, to vote? Let’s stipulate that the population of the hinterland is many millions and that polling stations are at the top of large mountains. The cost of voting is fatigue and often injury, while the likelihood of your casting “the decisive vote” is pretty much zero. So you should just stay home, right? It would be irrational for you to vote.

Read the rest here.

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Americans Living Larger

13 Jul

Recession? What recession? Bloomberg reports:

The percentage of new single-family homes greater than 3,000 square feet has grown by one-third in the last decade, according to data released last month by the U.S. Census Bureau. The increase has occurred even while 4.3 million homes have been foreclosed upon since January 2007, a result of the housing- bubble collapse and economic meltdown. Slightly more than 1 in 4 new homes built last year were larger than 3,000 square feet, the highest percentage since 2007.

This is even more mind-boggling:

The Census Bureau reports that the average size of a U.S. house rose in 2011 to 2,480 square feet, up from 2,392 square feet in 2010. The 2011 figure is 62.6 percent larger than the 1,525-square-foot average size in 1973.

So people are buying fewer newer homes, but when they do, they want to get that 3,000 square foot McMansion. Makes total sense.

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The Economics of Bank Robberies

13 Jun

Crime doesn’t pay when it comes to robbing banks, a new study finds… Economist Neil Rickman of the University of Surrey and his colleagues were given unusual access to financial data from the British Bankers’ Association. Such data about robberies are not usually disclosed to the public because it is commercially sensitive and could encourage copycat robbers. The data details:

In 2007, there were 106 bank robberies or attempted robberies at the 10,500 bank branches, compared with 7,500 robberies of other businesses. (In the U.S. in 2006, there were about 12,000 bank robberies.) Although bank robberies in Southern California tend to occur in higher numbers at branches near freeway entrances, the British team found no link to branch size, branch location, or how busy a particular branch is. Of all those robbed, only 13 were targeted twice and only one three times. About a third of attempted robberies were unsuccessful, and about 20% of the successful robbers were ultimately caught and convicted.

The average take in a British bank robbery is a modest 12,706.60 euros (about $15,887) per person, compared with an average of $4,330 in U.S. bank robberies. Given that the average U.K.wage for fully employed people in Britain is about 26,000 euros, a bank robbery “will give him a modest lifestyle for no more than 6 months.” If he robs two, he will still have only a modest lifestyle. Four robberies, and the odds are excellent that he will land in jail…Using a firearm in the robbery increases the average take by 10,300 euros (nearly $13,000). Each additional member of the gang raises the take by 9,033 euros ($11,600), but that means the average take per robber is lower.

Successful criminals study econometrics, the authors conclude, but based on the data provided, robbing banks is still a bad idea, economically speaking.

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(hat tip: Tyler Cowen)

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Is Everything For Sale?

18 Mar

Michael J. Sandel, a political philosopher at Harvard, is the author of What Money Can’t Buy: The Moral Limits of Markets. Ahead of the book launch, in a post adapted for The Atlantic, he cites examples of things that are for sale around the world:

• A prison-cell upgrade: $90 a night. In Santa Ana, California, and some other cities, nonviolent offenders can pay for a clean, quiet jail cell, without any non-paying prisoners to disturb them.

• Access to the carpool lane while driving solo: $8. Minneapolis, San Diego, Houston, Seattle, and other cities have sought to ease traffic congestion by letting solo drivers pay to drive in carpool lanes, at rates that vary according to traffic.

• The services of an Indian surrogate mother: $8,000. Western couples seeking surrogates increasingly outsource the job to India, and the price is less than one-third the going rate in the United States.

• The right to shoot an endangered black rhino: $250,000. South Africa has begun letting some ranchers sell hunters the right to kill a limited number of rhinos, to give the ranchers an incentive to raise and protect the endangered species.

• Your doctor’s cellphone number: $1,500 and up per year. A growing number of “concierge” doctors offer cellphone access and same-day appointments for patients willing to pay annual fees ranging from $1,500 to $25,000.

• The right to emit a metric ton of carbon dioxide into the atmosphere: $10.50. The European Union runs a carbon-dioxide-emissions market that enables companies to buy and sell the right to pollute.

• The right to immigrate to the United States: $500,000. Foreigners who invest $500,000 and create at least 10 full-time jobs in an area of high unemployment are eligible for a green card that entitles them to permanent residency.

Also interesting is this list of (strange) things people do to make money:

• Sell space on your forehead to display commercial advertising: $10,000. A single mother in Utah who needed money for her son’s education was paid $10,000 by an online casino to install a permanent tattoo of the casino’s Web address on her forehead. Temporary tattoo ads earn less.

• Serve as a human guinea pig in a drug-safety trial for a pharmaceutical company: $7,500. The pay can be higher or lower, depending on the invasiveness of the procedure used to test the drug’s effect and the discomfort involved.

• Fight in Somalia or Afghanistan for a private military contractor: up to $1,000 a day. The pay varies according to qualifications, experience, and nationality.

• Stand in line overnight on Capitol Hill to hold a place for a lobbyist who wants to attend a congressional hearing: $15–$20 an hour. Lobbyists pay line-standing companies, who hire homeless people and others to queue up.

• If you are a second-grader in an underachieving Dallas school, read a book: $2. To encourage reading, schools pay kids for each book they read.

So is there a market for everything?

In its own way, market reasoning also empties public life of moral argument. Part of the appeal of markets is that they don’t pass judgment on the preferences they satisfy. They don’t ask whether some ways of valuing goods are higher, or worthier, than others. If someone is willing to pay for sex, or a kidney, and a consenting adult is willing to sell, the only question the economist asks is “How much?” Markets don’t wag fingers. They don’t discriminate between worthy preferences and unworthy ones. Each party to a deal decides for him- or herself what value to place on the things being exchanged.

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Related:  One of the best pieces I’ve read on the black market for organs is this investigative piece in Bloomberg. Chilling.

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The Quarter Million Pounder with Cheese

27 Feb

What is the world’s most expensive burger? It will be at least €250,000, if Mark Post has something to say about it. That’s because Mark Post wants to create the burger entirely from scratch, with meat grown in a laboratory. Dr. Post, who works at Eindhoven University in the Netherlands, hopes to disrupt one of mankind’s oldest industries:

Raising animals is a resource-intensive process. About 30% of the world’s ice-free land is used for it. Yet of the nutrients in the plants these animals eat, only around 15% is turned into meat. As the human population grows, and grows richer, demand for meat is increasing. Dr Post hopes to satisfy at least part of that demand by making the stuff in factories, in a way that converts about 50% of the nutrients into something people can eat.

For now, that something is not exactly fillet steak. Dr Post’s cultures, grown from stem cells, are sheets 3cm long, 1.5cm wide and half a millimetre deep. To make the world’s most expensive hamburger 3,000 of them will be needed.

The stem cells themselves are extracted from cattle muscle and then multiplied a millionfold before they are put in Petri dishes and allowed to turn into muscle cells. When they have done so, they are encouraged to exercise and build up their strength by being given their own gym equipment (pieces of Velcro to which they can anchor themselves in order to stretch and relax spontaneously). The fatty cells of adipose tissue, needed for juiciness, are grown separately and then combined with the muscle cells before the whole thing is cooked. In theory, one cow could thus supply as many hamburgers as a million slaughtered animals can today.

Producing meat in Petri dishes is not commercially viable, but Dr Post hopes to scale things up—first by growing the cells on small spheres floating in tanks and ultimately by using scaffolds made of biodegradable polymer tubes, which would both add the third dimension needed for a juicy steak and provide a way of delivering nutrients and oxygen to the steak’s interior.

 Lab burgers — a dinner of the future?

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Why Do All Movie Tickets Cost the Same?

4 Jan

Derek Thompson over at The Atlantic has some great answers this basic question: why do movie tickets cost the same, regardless of the budget of the film? After all, shouldn’t supply and demand dictate prices? Why should you pay the same $12 to see a low budget Indie film vs. a Hollywood blockbuster? He offers the following reasons (emphasis mine):

1) Theaters do price discriminate already, kind of, but they do it with space. At the multiplex, not all theaters are alike. Bigger movies get more theaters with better technology. Smaller movies get older theaters with smaller screens.

2) You can’t consistently cut prices after a successful opening weekend. If people knew that ticket prices would fall after a big opening, many more would wait until the second or third weekend to see it, which would, ironically, destroy the meaning of opening weekends.

3) Price can repel as easily as it attracts, because it’s a signal of quality. If your a theater showing one movie for $6, one movie for $10, and another for $12, perhaps fewer people will see the $6 movie because they assume it’s garbage.

4) Cheaper tickets lead to higher policing costs. I’m a cheapskate, so I might buy a ticket to see cheap, cheap Iron Lady and sneak into Sherlock Holmes. This would create a fascinating incentive for art-house studios to release smaller, cheaper films the same weekend as blockbusters, knowing that thousands of canny consumers might buy fake tickets to their show to sneak into the more expensive blockbuster.

5) Price discrimination offers more opportunities for other movie theaters to steal each others’ audience. Once again, I’m very cheap, so I don’t mind taking the metro way across town to see Sherlock Holmes for significantly less money if one multiplex starts to mark up its blockbusters.

Full post here.

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The Million Dollar Taxi

24 Oct

The statistic of the day comes from The New York Times, which reports that for the first time ever, taxi medallions–aluminum plates that grant the right to operate a yellow cab–sold for over $1 million a piece:

The sale was the culmination of decades of astonishing growth for the humble medallion, which is nailed to the hood of every yellow cab in the city. When New York issued its first batch of medallions in 1937, the going price was $10 even, or $157.50 in today’s dollars.

Some perspective: The Dow Jones industrial average has risen 1,100 percent in the last 30 years. In the same period, the value of a taxi medallion is up 1,900 percent. That return beats gold, oil and the American house.

According to NPR, New York City strictly limits the number of medallions — currently at just over 13,000. So as the supply is held relatively constant, demand has been rising. But according to NPR:

The medallions create a textbook example of what economists call rent-seeking behavior: Basically, gaining extra profits without providing extra benefits. If the number of taxis were allowed to increase (and if cab fares were unregulated), the number of taxis would increase and the price of a cab ride would fall.

So forget investing in gold or the general stock market… Consider investing in TAXI.

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Europe and the Elephant in the Room

5 Oct

Today’s quote of the day comes from John Lanchester, about the European debt crisis:

The difference between a safe euro and a euro on the verge of failure is the difference between that metaphorical elephant in the room, which you can ignore, and an actual elephant in the room with you, right now, filling the air with its hot, dank breath. That situation would be unignorable, and the source of a rising panic. The euro zone is already in the room with that elephant; unless some decisive steps are quickly taken, the rest of the world will soon be joining it.

More here.

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