I’ve greatly enjoyed Alan Krueger’s “Land of Hope and Dreams: Rock and Roll, Economics and Rebuilding the Middle Class” speech given at the Rock and Roll Hall of Fame this past June.
In the speech, Krueger compares the economics of the music industry to what is happening in the U.S. economy as a whole. It puts the major shift in the average cost of concert tickets right next to changes in the US income distribution.
It features details from a clever study (.pdf) that measured the impact of luck in combination with merit on the success of artists in a system for downloading music. It also puts forth proposals from President Obama’s economic agenda for addressing the dangerous consequences of a winner-take-all economy.
I’m an avid concert-goer and watched ticket prices climb in the late 90s and 2000s. Later I ran a Dave Matthews Band fan website where we were so regularly bombarded by requests to run advertisements from scalpers we had to take a stand.
Not surprisingly, my favorite portion of the speech focuses on the concept of fairness:
If artists charge too much for their tickets, they risk losing their appeal. In this sense, the market for rock ‘n roll music is different from the market for commodities, or stocks and bonds.
Considerations of fair treatment exert pressure on how much musicians can charge, even superstars.
Along these lines, one of my favorite performers, Tom Petty, once said, “I don’t see how carving out the best seats and charging a lot more for them has anything to do with rock & roll.”
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This is a major reason why there is a market for scalped tickets.
But many artists have been reluctant to raise prices to what the market will bear for fear of garnering a reputation of gouging their fans.
They also protest when tickets sell for a higher price on the secondary market, and often try to prevent the secondary market entirely. And it is considered scandalous when performers sell tickets on the secondary market themselves.
This behavior can only be explained in light of fairness considerations. Singers want to be viewed as treating their fans fairly, rather than charging them what supply and demand dictate.
Indeed, you can think of market demand as depending on the perception of fairness.
Read The Economist’s digest of the speech or Download the text of the speech (.pdf)