The plot: The entrance to a small sized open-air concert. The actors: Two coordinated ticket buyer-and-sellers, individual buyers, individual sellers, the official box-office and, of course, tickets. The box-office ticket price for the event: 88 CHF. Availability of tickets at the box-office: Yes. This might be somewhat a post on “Economics 101,” a short – and true – story on the interesting dynamics that may emerge at the entrance doors for a concert.
I think, many are familiar with the image of people who try to sell tickets to others right before the begin of a concert. The reasons for doing this may be very diverse. Typically, I expect, whatever the motivation, that someone tries to sell a ticket to somebody who didn’t get one on time and, for some reason, I typically think the buyer will have to pay more than the original price. Of course, I may be wrong as I just witnessed.
In fact, two or more people could organize themselves to buy and sell tickets “on the fly,” with no real interest in the ticket, just in the margin they can make. In the plot, the organized buyer walks around with a plate that says “Buy tickets!” and the corresponding seller holds the tickets like a fan up in the air with the aim of finding a buyer. From time to time the two meet, as the buyer gives new tickets to the seller or because they might want to switch roles. A ticket bought on the “black market,” doesn’t, of course, have to be more expensive. In fact, in this story, they are less expensive than the original box-office price of 88 CHF.
I’m curious and decide to be an actor too. So I engage with the plot. I approach a man who wants to sell a ticket for which he asks 80 CHF. I believe, he truly is one of those who just wants to sell his ticket. More interesting is my second victim, as I knew he coordinates his selling with another guy, the buyer. (I caught them talking together and was surprised to see a buyer and a seller meeting and talking for awhile without actually buying and selling anything but exchanging money.) I ask the seller how much the ticket is. He says, “85 CHF.” Then I walk to the buyer he works with and tell him, “I have two tickets I would like to sell.” He says, “Make me an offer.” I answer, “I sell them for 80 CHF each.” He replies, “Too much, I buy them for 50 CHF each, not more.” I told him, I would think about it and left, after all, I had no ticket.
I think, we can try to discuss the plot from a free market perspective. I’m no economist and believe to have only a vague idea on what the free market is. Nevertheless, I hope to be somewhat faithful. I understand the free market to be a market free of government intervention. Perhaps, we can see the box-office, actor in the plot, as the “government monopoly,” the regulated market with a fixed price for a resource, the ticket. This top-down approach, with a somewhat non-transparent method in setting a price, clearly didn’t get it right, as tickets were still available minutes before the concert. They probably overestimated what people are willing to pay and potential buyers couldn’t suggest a different price, as it is fixed. The ticket never was a scarce resource, I suppose a failure from the box-office perspective, which is why the buyers and sellers, whether organized or individual, could not ask more than 88 CHF and, in fact, didn’t.
One might think, a market is attractive only with scarce resources. Not at all. Individuals, as well as coordinated groups, seem to be able to build a bottom-up market that dynamically adapts based on the self-interests of various actors, resulting in an adjusted price that might better reflect what people are willing to pay.
Perhaps worth to note, beside the box-office, which imposed a price and got it wrong, all other actors are winners. The tickets might be allocated more efficiently. The individual seller gets back cash for his ticket, even though, in this case, less than what he might have paid which is, however, still better than throwing away the ticket. The individual buyer is the lucky one as she gets to see a concert for which most of her fellows did pay more. The organized buyers and sellers try to make a profit, buy at 50 CHF, sell at 85 CHF and get 35 CHF which, I suppose, is what they want to pay off the risk of ending up with unsold tickets.
There is lots that is said in the name of the (free) market and right now, given the recession, many cry for regulation and oversight, accusing the (free) market to be the evil of everything. I don’t want to argue that the (free) market is a silver bullet that gets everything always straight (honestely, I just don’t know,) but I would like to underline that, I think, a true free market doesn’t exist in reality, hence, perhaps it can’t be the diabolic force that lead us into recession and I wonder if this short story might be an example, even though simple and small scale, that shows how imposing a price – somewhat arbitrarily and without allowing customer feedback – seems to be less efficient than a system where multiple actors engage in defining it, people democratically voting with their wallets and their indipendent decisions on how much they are willing to pay for the joy of listening to a concert. Whatever your worldview, I do think our reality is complex and ingrained in a way that it is impossible for one evil-doer to mess it up single-handedly.