Tag: economic welfare

An annual event takes place every October that leads to a large number of frustrated consumers – the sale of tickets for the Glastonbury festival. This year the sale of standard tickets began at 9.00am on Sunday 5th October. Within 27 minutes all of the 120,000 tickets had been sold and it was reported that over a million people had tried to access the website. Social media was full of messages from disappointed fans that had been unable to get a ticket.

The Glastonbury festival has grown in popularity and the organisers adopted a unique way of selling the tickets a number of years ago. They introduced a system that made it impossible for people to purchase tickets unless they had previously registered. Although there is no charge to register, in order to complete the process successfully, people have to submit a clear passport style photograph in Jpeg format. Once registered, customers are allocated a unique registration number which they must submit in order to purchase a ticket when they go on sale. Each buyer can purchase up to a maximum of 6 tickets and must provide a valid registration number for each separate ticket they obtain. Successful applicants receive a personalised ticket, including their photo, which cannot be re-sold. The organisers have been very clear about the rationale for introducing this scheme. They have stated that it is part of their

“on-going efforts to cut out ticket touting”

However a number of people have criticised the ticket sale process. These criticisms tend to fall into two key areas: first, the method used in the initial sale process and second, the constraints placed on resale after a ticket has been purchased.

The tickets are sold by the company SeeTickets and their Head of Business Development stated in an interview in 2013 that:

There is something like 1,100,000 customers registered to go to Glastonbury, and they all want a ticket. It’s a shame but there is nothing you can do about it. The 900,000 people that don’t get to go often come up with the argument, why don’t you just have a ballot? Why don’t we just register and a computer generated ballot just picks the winners? I think they’ve (Glastonbury) always had a view that if you get a ticket to Glastonbury there’s an element of work that you have to do to achieve that and it does reward that commitment. I think there’s a sense that if you use a ballot then maybe you’d get some people who were not as committed.

However responding to these comments a customer commented that:

I’ve been lucky in the past and got tickets within minutes and like this year tried all morning and come away empty handed. Whether I have been successful has nothing to do with hard work but the vagaries of the internet and a bit of luck.

Another customer commented:

No ballot! It’s too random. People who really,really want to go should get the tickets, so the only fair way is regional ticket sales, where you could queue ( overnight if required) to get your ticket. This is the only fair way. Year after year genuine fans miss out. This way fans who are willing to make an effort get the chance, rather than a ballot or the random computer system which they have at present.

Others have criticised the limited ability consumers are given to resell their tickets. The full cost of a ticket for the 2015 festival is £220 plus a £5 booking fee. When the tickets are originally sold in October, the buyers have to pay a £50 deposit and at this point none of the bands playing at the festival have been announced. The remaining balance of £175 is due at the beginning of April by which point some of the bands/acts will have been confirmed. Anyone who decides not to pay the balance or cancel their order before this date is refunded their deposit, minus an administration fee. Those tickets are then put forward for re-sale. The re-sale process typically takes place at the end of April and once again is only open to people who have previously registered. Last year 10,000 tickets were re-sold in just 12 minutes! Once this period in April is over the re-sale of tickets is prohibited even though the complete line-up for the festival may not have been confirmed.

The secondary ticket company Viagogo reported the results from research they had carried out on the 2014 festival. This found that following the relatively late announcement of Metallica as one of the headline acts,78% of people who had bought a ticket said they would have resold it if they’d had the chance.

A spokesperson from Viagogo stated that:

We believe that once you’ve bought a ticket it’s yours and if you want to sell it or give it away, you should be allowed to do so. In this case, with an unpopular headline act announced late, ticket holders lose out because they can’t resell their tickets and Metallica fans lose out because they can’t buy them.

Those people who either did not get a ticket or are left with a ticket they would rather re-sell will no doubt continue to complain about the ticket selling process.

The economics of GlastonburyThe Economist (24/6/14)
Handbag Economics: How much Glastonbury will really cost you Handbag Economics (12/6/14)
Should Glastonbury Festival tickets go to the ballot? Virtual Festivals (8/10/13)
Glastonbury 2014: Four in five fans wanted to resell tickets after Metallica announcement The Independent (26/6/14)
Third of Glasto fans put-off by strict ‘no ticket resale policy’ – but 2015 is still a sell-out The Mirror (6/10/14)
“People wanted to sell Glastonbury tickets!” says ticketing website Bad PR (3/7/14)
The pain of Glastonbury tickets – in two charts The Mirror (6/10/14)

Questions

  1. What is the opportunity cost of going to the Glastonbury Festival? Discuss some of the non-ticket factors you have included in your calculations.
  2. Draw a demand and supply diagram to illustrate the market for Glastonbury tickets. NB think carefully about the shape of the supply curve in both the short-run and the long run. Is the current price of a ticket at the market clearing level? Explain your answer.
  3. The sale and re-sale of tickets takes place before the all the headline acts have been announced. Illustrate what will happen to the demand curve for consumers with different preferences once the headline acts have been announced.
  4. Assess the relative costs and benefits of using a ballot instead of the current system used by the festival organisers to sell of tickets.
  5. The organisers of the festival introduced the registration process in order to limit the re-sale of the tickets. Analyse the impact of this policy on Pareto and allocative efficiency? Will the policy cause any deadweight welfare loss? What factors will determine the size of any deadweight welfare loss?
  6. Suggest some reasons why care may need to be taken when using the results from the research carried out by Viagogo.

Imagine that the team you support has made the final of a major competition or a your favourite band is playing a live concert this summer. You desperately want a ticket and are willing to pay the advertised price. They go on sale at 9.00am in the morning and you go on-line at 8.59am but unfortunately the webpage will not load. You keep pressing the refresh button but with no success. Eventually, annoyed and frustrated, you give up at 10.00am!

Tickets for sporting, musical or other live shows are initially sold by people who organise the events in two ways. They may choose to sell some or all of the tickets directly to the customer. For example you can buy tickets for a West End show from the box office in the theatre. With some football games it is still possible to buy tickets on the day at the stadium. Another approach is to sell some or all of the tickets via an authorised ticket agent. These businesses are usually members of STAR (The Society of Ticket Agents and Retailers) and the organisers of the sporting, musical or live show provide them with tickets to sell on their behalf. Some of the larger and well known agents such as Ticketmaster, Ticketline and Seetickets usually sell the tickets at face value although some booking fees are often added to the price. This initial sale of tickets by either the event organiser themselves or an agent acting on their behalf is referred to as the primary market.

For example, British Athletics sold all of its 130,000 tickets for its two day Anniversary Games on the 26th and 27th July via its authorised ticket agent in 75 minutes!! However an internet search for this event will quickly reveal that tickets are still available!! Unfortunately in most cases the advertised price will be far greater than the face value of the ticket. How is this possible? The answer is that the internet has helped a thriving secondary market for tickets to develop. The secondary market refers to situations where people who have already purchased tickets through the primary market re-sell them to other members of the public. Prior to the internet the main way of buying a ticket in the secondary market was to visit the venue on the day of the event and hunt for some-one willing to sell. However technology has dramatically reduced these transaction costs and made it much easier for potential buyers and sellers to make an exchange. For example companies such as Viagogo, Seatwave, GetMeIn and Stubhub have created websites that allow members of the public to buy and sell tickets. As Viagogo publish on their webpage:

You are buying tickets from a third party, Viagogo is not the ticket seller. Ticket prices are set by the seller and may be above or below face value.

Why does this secondary market exist? An economist would argue that it can only happen if the quantity of tickets demanded is greater than the quantity of tickets for sale at the price set by the event organiser. If this was not the case then customers would be able to buy tickets through the primary market on the day of the match, concert or show. The puzzle is to explain why prices do not rise in the primary market. If the quantity demanded of any product is greater than the quantity supplied then market forces should put upward pressure on prices. However it would appear that many of the event organisers appear to resist this incentive and consistently set prices below the level that would limit demand to the number of tickets available. This leaves an opportunity for sellers in the secondary market to sell tickets much closer to their market clearing rate. Navin Kekane, the business operations director of Stubhub, stated that

What we do is all about supply and demand, and you can sometimes find tickets at below face value.

Some of these companies in the secondary market have recently established formal partnerships with a number of English Premier League (EPL) football clubs and other major sporting bodies. For example Viagogo have signed deals with 10 EPL clubs while Stubhub have deals with 3 EPL clubs as well as Leicester Tigers and the Lawn Tennis Association.

However some observers have expressed grave reservations about the growth of the secondary market. For example Malcolm Clarke, chairman of the Football Supporters Federation, stated that

At the moment if you are fan trying to sell a spare ticket and are not authorised to do so then you face a criminal conviction, even if you sell at the face value.

But secondary ticketing exchanges, because they are authorised, are allowed to do so. Many clubs grant these agencies the right to allow the re-sale of tickets for their matches at above face value. I don’t think that can be right.

Joe Cohen, the founder of Seatwave counters that

Touts is an emotional, dehumanising word. The reality is that they are just speculators. No one likes speculators until you need something from them.

Some have called for more regulation of the secondary market. For example Sharon Hodgson, Labour MP for Washington and Sunderland West, unsuccessfully tried to get a Private Members Bill through Parliament which would have made it illegal to re-sell tickets for more than 10% above their face value.

Articles

Secondary ticketing: Inflating sport prices or useful service? BBC News Bill Wilson (13/5/13)
Sold out: Are Rihanna, Rolling Stones and Justin Bieber fans being ripped off by so-called secondary ticket websites? The Daily Mail Adam Luck (19/1/2013)
Olympic anniversary athletics event sells out in 75 minutes The Guardian Owen Gibson (19/2/2013)
Is this a new golden age for ticket touts? The Observer Laura Barnett (14/4/2013)
5 live Investigates: ‘legalised ticket touting’ by Premier League clubs BBC Sport Andrew Fletcher (2/12/2012)
StubHub UK expands into Premier League Ticket News, Jean Henegan (4/9/12)
Football fans lose out on £64m of tickets due to absent season ticket holders Daily Telegraph, (16/8/12)

Questions

  1. Give some potential advantages for a football club or sporting body of using an authorised ticket agent to sell tickets in the primary market.
  2. Using a demand and supply diagram explain what happens in a market if the price is continually set below its market clearing rate. Illustrate and explain how mutually beneficial trade can take place in the secondary market at prices above those in the primary market.
  3. Can you explain why it is less likely for a secondary market to exist for cinema tickets than a popular West End show?
  4. Can you think of any reasons why it might be in the interests of a profit maximising organiser of a sporting or music event to sell tickets below the market clearing rate.
  5. What non-price methods could be used to allocate tickets for popular events? Consider some of the advantages/disadvantages of using these non-price methods.
  6. Do you think it is in the interests of society to allow people to re-sell tickets at a price above their face value?

A recent post on this blog referred to what sounds a fascinating new book, What Money Can’t Buy: The Moral Limits Of Markets, by Michael Sandel. The Guardian also recently featured an extract from this book.

As the earlier blog post discussed, our lives are now dominated by markets. Economists typically believe markets are the best way to allocate resources as, if the market mechanism works correctly, the resulting equilibrium maximizes economic welfare as measured by the sum of consumer and producer surplus. In particular, all consumers that are willing to pay a price above the market price are able to buy the product.

Fundamental to the measurement of consumer welfare is the notion that consumers will be prepared to buy a product as long as their willingness to pay exceeds the price. It therefore follows that consumers are more likely to buy the product as the price falls and, if they do so, gain increasing surplus. However, the extract from Michael Sandel’s book provides a number of interesting examples which suggest that in some situations this might not be the case.

One example concerns the storage of nuclear waste in Switzerland. When surveyed, 51% of the residents of the small Swiss village of Wolfenschiessen, said that they would be prepared to accept the waste being stored nearby. However, somewhat surprisingly, this figure fell to 25% when the residents were told that they would be compensated for the inconvenience. Furthermore, the figure remained at this low level even when the proposed compensation was increased to over £5000 per person.

Sandel argues that this is because, once compensation is introduced, financial incentives crowd out public spirit. He suggests that:

putting a price on the good things in life can corrupt them.

For economists, this potentially has important implications for how we evaluate market outcomes and our belief that the market equilibrium is always the optimal outcome. Furthermore, it suggests that in some circumstances allowing the market mechanism to allocate resources may not be the ideal solution.

Articles

What money can’t buy – review The Guardian, John Lanchester (17/05/12)
Michael Sandel: ‘We need to reason about how to value our bodies, human dignity, teaching and learning’ The Guardian, Decca Aitkenhead (27/5/12)
We must decide on the way we want to live now London Evening Standard, Matthew d’Ancona (23/05/12)

Questions

  1. How is consumer surplus calculated?
  2. How does the market mechanism allocate resources?
  3. How would you explain the responses of the residents in the Swiss village?
  4. Do you think the Swiss residents would respond in the same way if the compensation offered was increased even further?
  5. What type of products and services do you think might be less well suited to being provided by markets?

Economics studies scarcity and the allocation of resources. Central to societies’ economic objectives is the reduction in scarcity and central to that is economic growth. Certainly, economic growth is a major objective of all governments. They know that they will be judged by their record on economic growth.

But what do we mean by economic growth? The normal measure is growth in GDP. But does GDP measure how much a society benefits? Many people argue that GDP is a poor proxy for social benefit and that a new method of establishing the level of human well-being and happiness is necessary

And it’s not just at macro level. As we saw in a previous news article, A new felicific calculus? happiness and unhappiness are central to economists’ analysis of consumer behaviour. If we define ‘utility’ as perceived happiness, standard consumer theory assumes that rational people will seek to maximise the excess of happiness over the costs of achieving it: i.e. will seek to maximise consumer surplus.

There have been three recent developments in the measurement of happiness. ‘Understanding Society’ is a £48.9m government-funded UK study following 40,000 households and is run by the Institute of Social and Economic Research (ISER) at the University of Essex. It has just published its first findings (see link below).

The second development is the work by the ONS on developing new measures of national well-being and includes a questionnaire asking about the things that matter to people and which should be included in a measure or measures of national well-being.

The third development will be an addition of five new questions to the Integrated Household Survey:

• Overall, how satisfied are you with your life nowadays?
• Overall, how happy did you feel yesterday?
• Overall, how anxious did you feel yesterday?
• Overall, to what extent do you feel the things you do in your life are worthwhile?

But after all this, will we be any closer to getting a correct measure of human well-being? Will the results of such investigations help governments devise policy? Will the government be closer to measuring the costs and benefits of any policy decisions?

Articles
Married for less than five years, young, childless: survey finds that’s happiness Guardian, David Sharrock (27/2/11)
The UK’s largest household longitudinal study launches its early findings EurekAlert (28/2/11)
Happiness Studied in Britain MeD India (1/3/11)
Statisticians to tackle ticklish issue of happiness Financial Times (24/2/11)
Survey to ask ‘How happy are you?’ BBC News (24/2/11)
ONS happiness questions revealed The Telegraph, Tim Ross (24/2/11)
What makes us happy? The Telegraph (7/3/11)
Bhutan’s ‘Gross National Happiness’ index The Telegraph, Dean Nelson (2/3/11)
Bhutan’s experiment with happiness The Third Pole (China), Dipika Chhetri (25/2/11)
Gross National Happiness: The 10 Principles The Huffington Post (China), Nancy Chuda (24/2/11)
You’re asking me if I’m happy? What kind of a question is that? Independent, Natalie Haynes (26/2/11)
Happiness = Work, sleep and bicycles BBC News blogs, Mark Easton’s UK, Mark Easton (25/2/11)
The Future of Consumption and Economic Growth Minyanville, Professor Pinch and Conor Sen (14/2/11)
Happiness: A measure of cheer Financial Times (27/12/10)

ONS site
Well-being: Measuring national well-being ONS
Consultation: Measuring national well-being ONS
Consultation: Measuring national well-being: the questions ONS
The measurement of subjective well-being ONS, Stephen Hicks (4/2/11)
Integrated Household Survey ONS

Understanding Society site
Early findings from the first wave of the UK’s household longitudinal study Understanding Society, Jon Burton, Heather Laurie and Peter Lynn Institute for Social and Economic Research, University of Essex

Questions

  1. For what reasons might GDP be a poor measure of human well-being?
  2. How suitable is a survey of individuals for establishing the nation’s happiness?
  3. How suitable are each of the four specific questions above for measuring a person’s well-being?
  4. Why, do you think, has average life satisfaction not increased over the past 30 years despite a substantial increase in GDP per head?
  5. Give some examples of ways in which national well-being could increase for any given level of GDP. Explain why they would increase well-being.
  6. Should other countries follow Bhutan’s example and use a ‘groass national happiness index’ to drive economic and social policy?
  7. If human well-being could be accurately measured, should that be the sole driver of economic and social policy?
  8. Do people’s spending patterns give a good indication of the things that give them happiness?

In a recently published book, Scroogenomics, Joel Waldfogel, Professor of Business and Public Policy at the University of Pennsylvania, examines the economics of giving presents and considers whether we would be better off being Scrooges. This book brings to a general audience some of Professor Waldfogel’s work on giving. In a 1993 paper, he argued that holiday gift-giving involves a deadweight welfare loss. “I find that holiday gift-giving destroys between 10 per cent and a third of the value of gifts.” (See The Deadweight Welfare Loss of Christmas. Note: you should be able to access this from a UK university site if you are logged on.)

The core of his argument is that many gifts we give are not really what the person receiving it would have chosen. If you give someone a gift costing £10 for which the person would not have paid more than £6, then that is £4 wasted – a deadweight loss of £4.

So should we all be Scrooges and stop giving? Think of all money that would be saved and which could be spent on things that were more wanted. But wait a minute. What about the pleasure (i.e. utility) of giving? And what about the pure pleasure of receiving a gift, irrespective of the gift itself? Should these be added in to arrive at the total utility? Then there is the pleasure (or hassle) of shopping for the gift. Shouldn’t this be taken into account too? In other words, to establish deadweight loss, we need to take into account all the pleasures and displeasures of the process of giving and receiving.

Finally there is the question of whether better research on the part of the giver into the tastes of the receiver would enable them to choose more wanted gifts. Or should we simply give cash or gift tokens: at least these can be used by the recipient for whatever they choose?

Interview with Joel Waldfogel Princeton University Press, on YouTube

See also the following articles:
It’s not just Scrooge who wants Christmas abolished Financial Times, Tim Harford (20/11/09)
Stop blaming Grandma for cruddy Christmas presents Seattle Times, Joel Waldfogel (20/11/09)
It may not be the thought that counts Washington Post (22/11/09)
Economics of gift vouchers BBC News Magazine, Ruth Alexander (17/12/07)
The high cost of ugly, useless Christmas gifts Globe and Mail (Canada), Erin Anderssen (13/11/09)
Author’s argument that unappreciated gifts drag down economy isn’t Scroogish, it’s foolish Mlive.com, Nancy Crawley (8/11/09)
Give gold, not myrrh The Economist (21/12/09)

Questions

  1. What factors would need to be taken into account in attempting to measure the true deadweight loss of giving? Would this involve inter-personal comparisons of utility and, if so, what problems might arise from this?
  2. Examine whether it is better to give cash or gift tokens rather than a physical gift?
  3. Consider whether charitable donations would be the best form of gift to a friend or relative?
  4. One practice used in many families is the ‘secret Santa’. This is where everyone in the family secretly draws the name of another family member at random. They then buy a gift for this person and put the gift under the tree (or in a box). Thus each person gives just one gift and receives one gift and nobody knows who has given them their gift. Normally a maximum value of the gift is determined in advance. Consider the advantages and disadvantages of such as system. Is it a more efficient way of giving?
  5. What are the macroeconomic arguments for giving presents at Christmas time or at other festivals?