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Why does much of the public feel strongly entitled to below-market pricing for certain luxury goods and services? And on the flip side, why do some companies seem to intentionally yield profit to scalpers? Why not dynamically price every premium product/service in today's day and age?
Case study A: Taylor Swift is making the news for selling record amounts of tickets for her upcoming tour. The internet in response has been raging against Live Nation's monopoly, corporate greed, price gouging, bots, scalpers, and Citizens United over both the expensiveness and the lack of availability of her tickets. The brouhaha predates TS--over the past few months, it seems like every time a popular musician launches a tour, the same headlines resurface about greed, price gouging etc.
Case study B: Nvidia's 4000 series graphics cards have been catching flak for their pricing. Same talking points as above, minus the monopoly part because there is real competition in graphics cards.
All this seems silly to me:
Concert tickets, like most everything else, and especially like luxury goods and services, are fundamentally priced by supply and demand. The internet is livid that TS tickets are both expensive and then resold for even more, and directs its anger at TS, LN, and scalpers, arguing that real fans are being cheated somehow. But I don't understand how any of it is actually unfair. Is a concert goer a fake fan if s/he buys from the secondary market at a higher price rather than waiting in 8-hour-long virtual queues the moment tickets go on sale? Super Bowl tickets routinely sell for thousands or tens of thousands. Are your average working class fans being cheated somehow because they cannot afford that? And if the NFL set up a buggy virtual queuing system that allowed people who otherwise cannot afford it buy Super Bowl tickets at a hefty discount (maybe that's exactly how it works. Idk--I've never once thought of trying to buy SB tickets), should society be critical if they then turn around and resell said underpriced tickets for a profit, and then presume to spend the money on goods and services that deliver them more utility? It's not like there is anything particularly virtuous about making sure people who buy tickets to a ball game are committed to attending rather than being free to change their minds or profit from gross pricing inefficiencies.
Nvidia's 3000 series ran into extensive problems with extremely mismatched supply and demand for something like two years, and this of course led to plentiful scalping, which if nothing else is a huge waste of resources considering all the time and money spent on shuffling products to and from middlemen. For the 4000 series, Nvidia smartly priced its products substantially higher than before, which should reduce the mismatch and get inventory to people who want it the most. They can then cut prices and offer discounts once sales slow down in the coming months/years.
Live concerts and premium graphics cards are luxury goods and services. The songs themselves remain extremely affordable through streaming services, and graphics cards released 5 years ago can handle the vast majority of games so long as you do not insist on playing on max settings. It's hard for me to see anyone's rights are deprived because their desire to go to a live concert or play games at the highest settings cannot be met. All the outrage that that either TS or LN is price gouging just sounds so stupid--it's a concert, people. If you don't like the price, don't go. We're not talking about overcharging for gasoline prices when a hurricane is about to hit.
But ultimately, the above is all noise to me. The simplest solution seems to be just to price all luxury goods and services dynamically. Consumers understand that airline and hotel prices are heavily dependent on supply and demand--traveling the Wednesday before Thanksgiving will cost far more than the Wednesday a week later, and flying first will cost substantially more than economy. Hotels on weekends when large conferences are in town will be priced significantly more than otherwise, and suites cost more than standard rooms. There is no scalping that happens for either product because, aside from the TSA, tickets are priced using algorithms that adjust automatically so there is no need to scalp.
So why not do that? Why not dynamically price every luxury good in high demand? Disney does it for its parks. I didn't look too closely into it, but it seems like maybe TS opted into dynamic price this time around, but clearly it's not dynamic enough if there are any scalpers who still make a profit. As for graphics cards, I think the world is better off if Nvidia prereleases the 4000 series online a few weeks ahead of public releases (since traditional retailers can't dynamically price as easily); and during that prerelease period, use algorithms to fully satisfy demand at the market clearing price. Like I mentioned, scalping is a waste of resources and productivity for all, so get rid of it. If Nvidia can retain the vast majority of profits and recapture waste from middlemen shipping and handling, that capital can be redeployed to R&D or paid back in dividends, which then can be invested in other productive enterprises.
Some immediate thoughts:
*There's only really two GPU manufacturers, though (maybe three if you count Intel's integrated graphics chipsets), and the competition is just barely enough between Nvidia and AMD. There used to be more manufacturers/brands (3dfx (which was bought out by Nvidia), PowerVR, S3, ATI (which was bought out by AMD), Rendition, Matrox...).
*I actually got to go to a concert for the first time ever this year, and it was for a band that's fairly popular, but not Taylor Swift-levels of huge. I'm just glad the tickets weren't eye-watering, but I probably would have been bummed if they were triple-digit priced.
*How is higher pricing supposed to stop GPU scalping? I'd contend that the Great Crypto Crash of 2022 is the very reason people are complaining about the prices (also probably doesn't help when the lousy connectors are melting, people demand better when they pay more)--Nvidia's pricing is only because they need to make money, they couldn't delay the cards, but there's also a glut of former mining cards out there--and those likely aren't 5 years old. But had the crash not happened, would putting a bigger price tag on the 4000 series have stopped crypto miners?
And how do you dynamically-price a concert? Or a GPU? Their demand curves presumably don't work like the seasonal examples you give. If anything the term "dynamic pricing" reminds me of the time Valve Software tried it in Counter-Strike: Source, and it went so badly it became a meme for a while. I suspect that higher prices don't scare off scalpers, but could instead feed them in a vicious cycle.
EDIT: another thought: didn't Michael Jackson make an effort to have free concerts/tickets for the underprivleged?
I'm not sure I understand your objection. Scalping is only profitable when you can buy something that's artificially underpriced and sell it for what buyers actually are willing to pay. By raising the MSRP to the level that buyers are actually willing to pay, scalpers no longer make any profit. Problem solved.
At the crudest level, announce to fans on the purchasing page that in order to deter scalping, prices will be set artificially high at launch, and then discounted automatically when sales fall below a certain velocity. So right out of the gate, apply a 10x surge multiple to the current face value. If anyone wants to buy them at that price, great. Otherwise, target sales of 1% of all tickets per hour, and whenever actual sales complete slower than that, reduce the 10x multiple. And whenever the multiple has been reduced to a level where target sales is proceeding at faster than 1% per hour, indicating high demand, slow or halt the multiple reduction until sales slows again.
This is just the crude alpha. Far more sophisticated and smooth UX versions can be designed and implemented. Plenty of features can be built over time, like letting customers set strike prices where they purchase tickets when it's below a threshold, in order to remove the need to stair at a computer for hours on end.
This makes it sound like scalpers are doing a service and keeping people from foolishly spending less money, as if a buyer is going to say "oh man, I'm glad I bought [thing] for $200 instead of $100!"
I think, in practice, scalping is more "guy buys 50%+ of the stock of [thing], forcing people to buy it from him because it's sold out because the guy bought 50%+ of [thing]." You can raise the prices on something, but so long as it is sufficiently scarce, it probably won't stop someone from thinking they can flip it for better. (See also: gun and ammo prices during the pandemic)
Your dynamic pricing idea also doesn't seem to account for botting--what happens when the price dips to a good low point, and then is immediately hammered for north of, say, 10% of all tickets?
Math is entirely correct (and this is just econ 101), but put very simply and less precisely - if the original market is well behaved enough, and there's "enough" thing for everyone who's willing to pay $100, then the scalpers can't make money, because people can buy from the original seller at $100. And the people who haven't bought tickets are willing to pay less than $100, so the people the scalper crowds out by buying extra tickets are 'on the margin' and willing to pay $100, so the scalper doesn't make money - they buy for $100, sell for $100. But in cases of 'scalping' there usually isn't enough thing for everyone who's willing to pay $100, so there are lots of people who are willing to pay $200 who aren't getting a ticket, so the scalper buys for $100 and sells for $200.
This 'makes the market more efficient' in cases where the thing matters and isn't a concert ticket - if company A wants to buy thing for $10k because it's a critical component for centrifuge and company B wants to buy the thing for $5 because it looks nice on their wall, and the seller is selling for $5, and B buys it, this is just dumb - whereas if the scalper scalps it and sells it for $10k, the economically useful thing happens, and the scalper gets the monetary benefit (which the original seller can capture by raising the price themselves).
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There are a finite amount of product/service. There are more people who want product/service than exist. Someone is getting screwed no matter what, the only question is who.
With dynamic pricing, the product is distributed according to some combination of desire and wealth. If we have 5000 things all sold to the highest bidder, then the 5000 people who are willing to pay the most get it. If you really really really want it, or have lots of money and resources of your own to exchange for it, then you get it. While people who only slightly want it don't get it. Importantly, this is decentralized: people can decide on their own the maximum amount they are willing to pay. In some sense, casual customers who only want it badly enough to pay $100 losing out to obsessives who are willing to pay $300 is a good thing, because the obsessives actually want the product more. Also importantly, there is no deadweight loss. The extra price goes directly to the seller, and via market forces will incentivize them or competitors to produce more comparable goods/services (if all GPUS cost double, then existing manufacturers can afford to scale up production, and investors will fund more competitors)
With fixed pricing and no scalpers, the product is distributed on a first come first serve basis. The first 5000 people who get there get the product. Now, this does nonrandomly favor customers with a higher valuation on the product who will be more likely to obsessively stand in lines or wait for product release, but in a much weaker way. It rewards people with more free time on their hand instead of people with more money. It's much more "fair" in the sense that rich people don't have an advantage over poorer people, but much worse at assigning product to people who actually want it more, as some people may not have the same time flexibility as others. And, importantly, this extra time spent is pure deadweight loss. A person standing in line for 48 hours doesn't benefit the seller whatsoever, it's just 48 hours of time lost in order to change their order. The supply/demand feedback breaks down and fails to send the proper signals to the producer that they need to produce more of the good.
Scalpers provide the "service" of effectively changing the second system into the first one, which is more market stable. People who value the product at a very high level but failed to get lucky with the timing would be screwed in the second system when someone else buys their product. But if they pay a scalper then they can get their slot as if it were in the first system. And, since they value the product more highly than the average customer who would buy the product at the low price, value is created, because products are distributed to people who want them more.
Now, scalpers can also rentseek by creating artificial scarcity (if there are 10,000 seats at a concert and only 5,000 willing customers, then allocation wouldn't normally be an issue, but a scalper who buys 9000 tickets creates scarcity). But for anything that would have sold out anyway this is not a concern. The only real concern is that they're sapping the profit that by all rights ought to go to the producer and incentivize them to create more product. In some ways it's the worst of both worlds. But they are providing a service to high-value customers who want the product and wouldn't get it without them. And, importantly, dynamic pricing would provide that same service without the rent-seeking. The market is broken, scalpers are a symptom and not the disease.
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