The ticketing industry consists of two main players, which spend a lot of time fighting each other. Now they both may suffer.
There's Ticketmaster, of course. And then there's eBay-owned StubHub, the world's largest secondary ticket marketplace. By Ticketmaster's view, StubHub encourages scalpers to buy in bulk and force fans to pay more. By StubHub's view, Ticketmaster is a shark mostly focused on killing competition. The truth seems to lie in the one thing both sides agree on: The whole thing's a mess. "Unlike most industries, this industry doesn't price the product at the intersection of supply and demand," says Ticketmaster's North America president, Jared Smith. Instead, performers use prices as a tool—to trigger quick sellouts, to steer fans toward the sections that are shown on TV, and so on—which causes events to make less money than they could and produces a secondhand marketplace that is ripe for abuse. But a couple of economists at Northwestern University have developed a scheme to change everything. It's surprisingly simple, and, if it spreads throughout the industry, it could control the very thing that makes the industry so frustrating. Ticket prices will finally make sense.
Trouble starts early: Teams and concert promoters "do not do sophisticated financing where they borrow short-term," says Northwestern University economist Jeffrey C. Ely. They need all tickets to sell fast—encouraging lower-than-marketvalue prices and an economy of scalpers—though some try to earn more through Ticketmaster's pricing options.
Traditional Teams or artists set prices the same for all events.
Variable In sports, all prices are set at the beginning of a season, but hot games are priced higher.
Dynamic Prices fluctuate even after tickets are on sale, based on demand; half of sports teams on Ticketmaster do this.
Brokers often use computer programs that have snatched up to 60% of tickets for hot events. Ticketmaster tries to detect and halt the bots, but it admits it can't catch them all.
That's expected. Large venues have between 20 and 40 price points, and a promoter won't drop the price low enough to fill all the seats. That only devalues the product. Rather, their goal is to upsell: "It's to get that fan who was going to buy the $30 ticket to say, 'I'll spend the $5 extra for the better seat,'" says Barry Kahn, CEO of the dynamic-pricing firm Qcue.
A version of this article appeared in the December 2013 / January 2014 issue of Fast Company magazine.