How much should you pay to see Billie Eilish? Don’t ask St Thomas Aquinas
Thomas Aquinas argued for the concept of a “just price”, but when it comes to concert tickets the correct price is the one determined by the market, says Paul Ormerod
Summer is in full swing, and with it the usual round of festivals and music gigs.
Alongside these, another tradition is emerging. Namely, extensive whingeing and whining about the price of tickets to these events.
Certainly, prices seem to have risen very substantially in the past few years. The Times newspaper gave a good example last weekend. In 2022, Billie Eilish performed for six nights at the O2 arena. The average price for a standing place was £76. This year, she is carrying out exactly the same schedule. The difference is that the same places are on offer at £245.
We might reasonably feel that this is a simple matter of supply and demand. After all, no one is forced to attend a concert or a sporting event, it is a matter of choice. If the supplier pitches the price too high, this will be reflected in empty seats.
The medieval scholar St Thomas Aquinas is famous for developing the concept of the “just price”. Given the pervasive feeling that it is somehow unfair to charge too much, it seems to be an idea which is very much alive and well.
Dynamic pricing
A recent development facilitated by technology is the source of much disquiet. This is the phenomenon of “dynamic pricing”. Promoters of events set a range of prices for the same seat and related services. Once the first tranche, at the lowest price, has sold out, the next one is put on offer at a higher price, and so on.
The practice has become widespread. Most long-distance trains, for example, offer a small number of very cheap advanced tickets for a particular service. When these are gone, higher prices apply. The nearer it is to the time of journey and the more flexibility the traveller wants, the higher the price.
But it is the application of dynamic pricing to popular culture events which attracts particular opprobrium.
Earlier this year, Lisa Nandy, the Culture Secretary, pledged to crack down on high prices at gig events. One of her Cabinet colleagues, Lucy Powell, at the time expressed personal outrage at the amount she had to pay. At least, unlike many Cabinet members, she paid for herself.
The problem for any sort of inquiry is that the whole process of pricing is complex.
The supply and demand curves drawn in basic economics textbooks look very neat. Price is set where the curves cross, where supply and demand are equal. But there is much more to it than this.
For example, financial markets might seem an obvious application of the elementary laws of supply and demand. But the price at any point in time of, say, Microsoft shares, does not appear by magic. In order to find the price which balances supply and demand, most markets use an algorithm known as a continuous double auction which both stores and matches orders.
Uber is another well known example of the use of an algorithm to set the price. In this case, if demand is high in a particular locality, the service is not doled out in successive parcels at different prices. Prices surge immediately.
Even old-fashioned greengrocer stalls in markets use a form of algorithm. If a product is perishable and really will not be fit to sell tomorrow, the price is discounted.
The alternative to using price to decide who gets what is of course the queue. The NHS is the prime example of this mechanism. You join the list and wait.
Increasingly, of course, people are rejecting the queuing principle. More and more are using private health care.
Whatever its faults, price is the best way we have yet discovered to allocate resources.
Paul Ormerod is an Honorary Professor at the Alliance Business School at the University of Manchester, an economist at Volterra Partners LLP, and author of Against the Grain: Insights of an Economic Contrarian, published by the IEA in conjunction with City PM