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Sunday, February 21, 2010

Ticketmaster Monopoly

The merger between Ticketmaster and Live Nation was approved. This gives Ticketmaster a near-monopoly when it comes to selling tickets and promoting concerts.

I thought that part of the motivation for founding Live Nation was to compete with Ticketmaster's monopoly? That illustrates the problem with the State. If there's a successful competitor, you just buy them out. Via negative real interest rates, the State finances the buyout.

A pro-State troll says "This occurs naturally in a free market!" This is false. The buyout is funded via negative real interest rates and inflation/taxation. There are laws restricting competition.

Most arenas are financed via taxation/theft, via municipal bonds, which get a tax exemption in addition to negative real interest rates. The taxpayer-financed arena then signs an "exclusive contract" with Ticketmaster. All events there then must sell their tickets via Ticketmaster, even if the performer objects. The net result is a State subsidy for Ticketmaster.

If I want to build/buy a theater, I don't have access to capital like a large corporate monopoly. I don't get the perk of borrowing cheaply. Plus, I have to obey regulations and pay taxes. If I have a 200 seat theater, the cost of regulation compliance is greater per-customer than at a big arena.

Due to State regulations, it's illegal for me to host a performance out of my home/basement/apartment, unless I do it agorist-style. (So much for "freedom of assembly", when you need a permit to host an event and sell tickets.)

Ticketmaster's fees are obviously those of a monopolist collecting economic rent. Consider a typical example, where the Ticketmaster fee is $10, usually 30% of the face amount of the ticket.

Suppose I decided to sell tickets directly myself. Can I beat $10 per ticket? Obviously! Suppose I hire someone and pay them minimum wage to answer the phone and sell tickets. If my employee can sell more than 2 tickets per hour, that's a better deal than using Ticketmaster!

Obviously, my employee probably could do 20+ sales per hour. I probably could afford to pay more than minimum wage and hire extra people so customers don't have to wait. I probably could write ticket-selling software in a few weeks, leading to further gains.

There's another benefit to selling tickets myself. As I mentioned before, a dutch auction is the best way to sell tickets. That optimizes profits for the performer (unless customers have a *VERY SKEWED* price-demand curve). I could always have a separate auction for premium front-row seats. A dutch action avoids the "Tickets are too cheap!" problem, which leads to arbitrage opportunities for scalpers. A dutch auction avoids the "Tickets are too expensive!" problem, leading to empty seats.

The fact that tickets are not sold via dutch auction already is evidence of a non-free market. Most venues have exclusive contracts with Ticketmaster. That prevents people from using the Internet to innovate. Insiders at Ticketmaster have a monopoly, so there's no incentive for them to change their practices.

Tickets are usually sold for a fixed price. If the price is too high, seats are empty, an obvious embarrassment. If the price is too low, this creates an arbitrage opportunity for scalpers. The promoter's goal is to avoid the embarrassment of empty seats, so he sets the price too low. Via the Principal-Agent problem, the promoter doesn't lose money by setting the ticket price too low, so the price is too low. In fact, Ticketmaster now has its own ticket-auction website. Customers are sent there, if the concert is sold out! Laws declaring "Ticket scalping is illegal!" further subsidize Ticketmaster. The problem is not the scalpers. The problem is that the Ticketmaster monopoly set the price of tickets too low, enabling scalpers to profit.

Some customers tried suing Ticketmaster, claiming anti-trust violations and abusive pricing. The corrupt State court ruled that ticket purchasers are not the actual customer of Ticketmaster! The arena with the exclusive Ticketmaster contract is Ticketmaster's actual customer! That's an interesting legal loophole!

Arenas sign a long-term exclusive deal with Ticketmaster. Ticketmaster pays a huge upfront fee for this contract. This lets arena executives pay themselves a nice bonus, but it cheats performers and customers. It's the usual "other people's money" problem or the Agent-Principal problem.

Abusive practices by Ticketmaster are a symptom of a non-free market. I'd like to try buying my own theater and selling tickets directly via dutch auction, if I have success at "promote agorism via standup comedy".


Anonymous said...

I agrree all the way on this. Why can't we start doing shit ourselves.screw capitalism and their tax markets. Cheers mate!

gilliganscorner said...

I wonder how long it will before Apple figures out selling tickets via iTunes....

FSK said...

Apple can't do that. The arenas have long-term exclusive contracts with Ticketmaster.

Anonymous said...

Boycott Ticketmaster!

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