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Auctions improve ticket pricing, study finds

December 02, 2013

If Ticketmaster were to conduct auctions, they would find a more accurate price, increase revenue for artists, and limit brokers’ profits

Buying event tickets online often is a race against the clock, with many of the most popular concerts or sporting events selling out in minutes or seconds. After the dust settles, if you’re left empty-handed, you have ask yourself: How badly do you want to see the ticket? What is it worth?

Inevitably, many of the tickets to a sold-out show or sporting event end up in the secondary market at steeply inflated prices, bringing a sizable profit to the ticket brokers selling them.

Eric Budish, associate professor at the University of Chicago Booth School of Business, and Aditya Bhave, a Ph.D. student, examined this phenomenon in a study titled "Primary-Market Auctions for Event Tickets: Eliminating the Rents of 'Bob the Broker,'" and found that auctions would eliminate underpricing, which reduces ticket revenue and encourages escalated prices on the secondary market.

"Our basic findings suggest that auctions work (as auctions should!)," they write, noting that the auctions found the actual value of the auctioned tickets, artist revenues nearly doubled versus the fixed-price tickets that were sold for the same show. "Perhaps most importantly, the auctions eliminate or at least substantially reduce resale profits for speculators."

Such auctions, they write, writes, would help find the true value of tickets, and the artist, promoter and venue would all make more money.

The researchers compared data from Ticketmaster, which has been conducting artist-approved auctions on select tickets for premium seats since 2003, with data from eBay, a major secondary-market ticket auction site.

Using data from 22 concert tours in 2007 and ’08, Budish and Bhave found that auctions do a good job of finding the tickets’ secondary-market resale value. Thus, profits for ticket brokers are greatly reduced, to about $6.07.

"Put differently, not only do the auctions discover significantly different prices from the counterfactual face values, but these prices are also essentially correct on average," the researchers wrote.