Taylor Swift. Picture: DANNY MOLOSHOK / REUTERS
Taylor Swift. Picture: DANNY MOLOSHOK / REUTERS

Taylor Swift made sparks fly last week when she announced a new approach to selling concert tickets. Instead of “first come, first served” -- which invites predation by bots -- Swift’s upcoming tour will sell tickets first to the people who engage the most with Swift’s website.

Swift is using Ticketmaster’s Verified Fan program. Users register and then undertake “boost activities” like buying Swift’s new album, sharing links on social media and watching videos. When tickets go on sale, they’ll be offered to fans in order, according to who did the most “boosting.”

The goal, as Swift explains in an animated cat video, is to make sure that tickets get to superfans instead of scalpers.

The public reaction has been mixed. Some have praised Swift’s entrepreneurship. But others think her approach is exploitative of fans and downright mean.

Let’s set the PR aside and think through the economics: Effectively, Swift is selling her tickets in an auction. Even though the tickets themselves will be sold at fixed prices, they’ll go to the people who are willing to “pay” the most through buying merchandise, generating social media buzz, and watching Swift’s music videos over and over again. Potential buyers are competing with one another, just like in a traditional auction.

Concert ticket auctions have been tried on Ticketmaster before. They worked out well for artists, and badly for scalpers.

My economist colleagues Aditya Bhave and Eric Budish studied a series of auctions that Ticketmaster ran in 2007. In each case, some tickets were sold by auction, and others were sold at fixed prices, so Bhave and Budish could compare artist revenue across the two pricing strategies. By checking resale prices on eBay, they could measure the scalper rates, as well.

Bhave and Budish found that using auctions roughly doubled artists’ revenues. Meanwhile, the auctions substantially cut the profits associated to reselling tickets -- even though some ticket brokers did bid in the auctions, their average profits were an order of magnitude lower than the return to scalping tickets they bought at a fixed face value.

Getting money to artists instead of scalpers is something we can all get behind. We can probably also agree that auctions are an imperfect approach.

There’s inequality when you run an auction: Wealthier people are more able to afford tickets. But some of that same inequality is already present in the fixed-price system; it’s just harder to see. With brokers and bots buying up tickets and reselling them, many of the fans who make it to concerts are the ones who can pay premium prices to scalpers.

Swift’s auction is special because its currency is user engagement, meaning that the “wealth” favored is not strictly financial.

Engagement costs much less to true fans -- which the internet informs meare called “Swifties” -- than it does to ticket brokers. If you’re already watching Swift’s videos 22 times per day, and post about her on social media every 15 minutes, then you jump ahead in line without having to adjust your behavior at all.

But if you’re a scalper, everything has changed: Now to get to the front of the line, you have to buy a large number of copies of Swift’s albums. 1

A bigger concern about Swift’s auction is that even the people who don’t win still end up paying. And remember also: Nobody’s bidding for tickets directly; they’re just bidding for chances to buy them.

Bhave and Budish found evidence that less experienced bidders in Ticketmaster auctions sometimes made substantial bidding mistakes, paying far more for tickets than they actually needed to. Swift is providing some transparency by giving bidders a meter that indicates how well they’re doing. But even so, it’s quite likely that some people will over- or under-bid, and be left disappointed.

In particular, some fans may invest a lot of time and money boosting Swift, and still not receive a chance to buy tickets. At least when people pay too much in more standard auctions, they still end up with tickets. Here, they might end up paying for blank space. That’s not good, and could perhaps be fixed by using different auction mechanisms in the future.

Nevertheless, we should thank Swift for trying out this new approach. It’s a worthy experiment in pricing, despite any initial bad blood.

- Bloomberg


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