Here is a 'head scratcher' of a theory... LCD Soundsystem content

http://blogs.reuters.com/felix-salmon/2011/02/19/the-dynamic-economics-of-lcd-soundsystem-tickets/

A clear narrative emerged pretty quickly in the wake of last week’s LCD Soundsystem ticket fiasco. Annie Lowrey tried and failed to get tickets when they went on sale at 11am on Friday, but was foiled:

Had something gone awry? I quickly checked Twitter. Nobody—really nobody, it seemed—had gotten through. Perhaps there was a problem with the site?

No. As it turned out, the show had sold out within seconds. It is just that professional ticket resellers, otherwise known as scalpers, had scooped up the bulk of the seats. Within minutes, hundreds of them were available on StubHub and other secondary markets where sellers can charge whatever they want. Tickets with a face value of $49.50 were going for 12 times that—with some coveted spots in the general-admission dance area going for thousands of dollars.
How did they do it? With bots. Computer systems—not particularly sophisticated ones, either—submit tens of thousands of requests for tickets the very instant they go on sale, crowding regular folks out.

This story seemed to be confirmed by LCD Soundsystem itself, with a profanity-laden posting blaming scalpers for the problem and presenting new shows at Terminal 5 as the solution. As Lowrey puts it, frontman James Murphy “realized he had an ace up his sleeve. He flooded the market, adding shows, upping ticket supply, and hopefully pushing prices down.”

For anybody who loves both music and teachable moments in microeconomics, the subject was irresistible. Lowrey’s post was followed up by Matt Yglesias, who drily declaimed that “optimal allocation of LCD Soundsystem tickets requires demand-responsive ticket pricing” if scalpers aren’t going to end up collecting rents. And Rob Cox, after looking into the matter, concluded similarly that what we’re seeing here “offers a strange insight into the laws of supply and demand”.

But in fact the story of these shows is much murkier than all this pop-economics punditry would have you think. Bob Lefsetz, who has real-world experience of how tickets are sold in practice, says that far from selling out 13,000 tickets at the public on-sale date, LCD Soundsystem in fact only sold 1,000. He notes:

James Murphy could publish exactly how many tickets go on sale to the general public, but he doesn’t want to. No act wants to, they’re afraid of the public outcry. This information is available to acts, but they don’t want to disseminate it.

After publishing his analysis, Lefsetz then mailed out a letter he received which lays out an intriguing counternarrative. What if the MSG show has not, in reality, sold out at all? The conspiracy theory goes like this: LCD Soundsystem’s promoter, Bowery Presents, owns Terminal 5. By holding back most of the MSG tickets, secondary-market prices would be sure to skyrocket. The way that MSG is structured, the coveted general-admission area in front of the stage is actually pretty small, which means that it’s quite easy to generate a handful of headline-grabbing offers of tickets for sale at $10,000 apiece or more. If they wanted, LCD’s promoters could even put those offers up themselves, and then encourage the band to complain in public about the exorbitant prices.

After getting everybody’s attention by artificially clamping down on the supply of MSG tickets, LCD’s promoters can then easily sell out four or more shows at their own venue, Terminal 5, which by coincidence just happened to be unbooked in the run-up to the MSG gig. Given all the buzz that this activity creates, the unsold MSG tickets can then be quietly disposed of on StubHub and other secondary-market sites.

I suspect that there’s more than a little truth in the conspiracy theory. For one thing, the number of tickets available on StubHub did not actually increase appreciably after 13,000 tickets were purportedly sold out in seconds. On top of that, we’re in mid-February already; it’s definitely weird that Terminal 5 was set to be completely dark from March 20 through March 31, with the exception of a single show on March 25. And it’s even weirder that no one — no one at all — got public tickets for the MSG show when they supposedly went on sale en masse: the only people who have gotten tickets in the primary market did so on the pre-sale dates or through tickets allocated to American Express.

The fact is that concert promoters, like art dealers, are fiercely protective of the asymmetric information advantage they have over the general public. Bowery Presents, the promoter of these shows, knows full well how many tickets were sold to the MSG show, and when. But they’re not releasing that information, because it’s very much in their interest for everybody to believe that 13,000 tickets sold out in a matter of seconds.

I don’t think that’s possible. Bots are sophisticated, to be sure, and anybody familiar with high-frequency trading on stock exchanges knows how quickly financial transactions can take place electronically. But Ticketmaster is not set up as a high-frequency exchange, and indeed puts up obstacles designed to make it harder for bots to buy lots of tickets quickly.

On top of that, bot-wielding scalpers had no particular reason to believe that LCD tickets would become hugely valuable on the secondary market, given that the band had never played a show of remotely MSG’s size in the past. I can see them buying a few hundred tickets over the course of 15 minutes or so; I simply don’t believe that they bought more than 10,000 tickets in the space of less than 15 seconds. I don’t believe they wanted to, and I don’t believe they’re capable of doing that even if they did want to.

People sympathetic to the band, like Rob Cox, claim that LCD Soundsystem and its promoters didn’t understand the economics of scarcity when they put the MSG tickets on sale. I, by contrast, think they understood the economics of scarcity all too well — and successfully used it to generate buzz and publicity. What really happened here, I think, is akin to the IPO of theglobe.com back in 1998, where the supply of new shares was so tiny that the price soared from $9 to $97 on the first day of trading. In turn, that generated lots of headlines, and ensured that the number of people who had heard of the website increased by orders of magnitude.

Supply and demand for concert tickets aren’t static numbers which then get reflected in prices. There are complex feedback loops here too: scarcity and price mechanisms can feed back into increased demand for tickets. Certainly this story has meant a large increase in the number of people who know that LCD Soundsystem is playing its last-ever gig at MSG in April. It’s surely naive to think that all the second-order effects here were completely unintended.