Market-Clearing Prices and Broadway Shows
https://www.nytimes.com/2017/06/08/business/broadway-theater-ticket-prices.html
The article by Stewart addresses the issues surrounding dynamic pricing of Broadway show tickets. As the demand for a performance increases, rather than charging consumers a fixed amount of money, “costs shift constantly to match demand.” As a result, there was backlash among many buyers complaining about the different costs, treating them as unfair or impossible to pay. The article points out that there have been many industries where dynamic pricing is more well-accepted, including airline fares, hotel prices, concerts, sporting events, and designer clothing. In any of these cases, the amount of supply simply cannot keep up with the demand, so adjusting prices accordingly is necessary in a capitalist market.
The points raised by the author are valid and an insightful take on market-clearing prices. Given the demand for the Broadway show tickets, allocating these resources becomes a rationing problem. In other words, given a market where there are always market-clearing prices, there will be people who buy tickets when they are at a low price and sell them again on a secondary market. This results in the consumer being able to profit even though the investors, creators, and performers are the ones putting on the show. Had the ticket prices been higher, then the profit that the consumer would have normally gotten now goes to the people responsible for the show instead. This makes dynamic pricing an attractive option, where market-clearing prices can be higher than the true value of a ticket and result in an ever higher positive payoff for the seller.
Though many consumers feel as if higher ticket prices prevent them from being able to see a Broadway show, it is possible that these higher market-clearing prices actually benefit certain ticket buyers. The article mentions N. Gregory Mankiw, who paid $2,500 for Hamilton tickets two weeks before the performance. Had the prices been lower, however, he might not have been able to buy the tickets at all given the short time frame. In addition, lower prices could have resulted in negotiations in secondary markets which benefit the original ticket-buyer rather than the Broadway performers. With dynamic pricing, there are many other Broadway shows that are in lower demand and therefore have cheaper seats, especially during weekdays or shows in January and September.
With very popular Broadway shows, tickets will always be too scarce to meet the demand. Market-clearing prices can be achieved at much lower prices for the tickets, but that results in profits that could be exponentially larger when taking into account resellers in secondary markets. Because the price consumers are willing to pay is relatively high, having higher market-clearing prices makes intuitive sense when trying to maximize profit. Perhaps in the future, anybody who wants to see their favorite Broadway show will be able to at a price they can afford. But until then, dynamic pricing is the new reality in this industry and higher market-clearing prices can be expected with top Broadway hits.