Macroeconomics Pricing Mechanisms based on Glastonbury Music Festival Ticket Sale - Case Study Example

Glastonbury Music Festival Tickets Sale Taking a deeper look into the microeconomics that was at play in the Glastonbury music festival, we find that the preferable balance or equilibrium between demand and supply was not portrayed; basing such a perspective on the available statistics for that particular event. With only about a hundred and thirty thousand people out of roughly one million one hundred thousand people obtaining tickets, only ten percent of the market demand was addressed. Without first taking ticket price into consideration, the room for a good balance attained in a market clearing situation was clearly at large. Comparing this to the model characterized as efficient equilibrium, where utility functions increase continuously, efficiency appears not to have been a part of the outcome for this particular event. This paper aims to analyse and compare the varied macroeconomics pricing mechanisms as well as the applicable strategies on ticket allocation, all in a bid to determine the best mechanism that would assist work toward a Pareto efficiency balance for this record-breaking event. The general price theory associates the price of a commodity to vary directly with the value of the commodity (Besanko Braeutigam 2013). The theory further draws an analogy between the value of a commodity and its scarcity or ease of its availability. In a market situation, sellers aim at an optimal price for their commodities while buyers to the contrary opt for minimal price set on commodities. In an average or normal situation, it is the intersection between the two varied prices that ensures that markets are cleared without any excess or surplus on either side. A market clearing condition is thus achieved whenever the supply of commodities equals or meets the total quantity of goods or commodities demanded. For the ticket prices set for the Glastonbury music festival, the price was not at a market clearing level since the demand for tickets by willing buyers overwhelmed the amount of tickets available for sale. Under pure exchange price theory, a trader should be able to balance his endowment in the market with his possessed commodities. With such a balanced allocation of endowments and possessed commodities, Pareto efficiency as outlined in Besanko Braeutigam (2013), may be said to have been achieved which was not the case for the music event. Source: Besanko, Braeutigam (2013) The different strategies or economic paths available and apparently of best application to the sale of Glastonbury music festival tickets, and preferably retain or enhance efficient equilibrium have varied merits with regard to the above preferable characteristics. A ballot system, primarily aimed at an assumed equilibrium Glaeser and Luttimer (2003), would impart positively on product utility and negatively on production utility. This effect is further enhanced when the price of a commodity is to remain constant as was the case in the Glastonbury music festival ticket sale. Even as the ballot system may seem to holds other external factors constant, it also increases uncertainty. This effect further imposes opposing vectors in the utility graph for both customer and the firm. Such an impact fails to achieve efficient equilibrium. However, in circumstances where there lacks a balance between demand and supply, efficient allocation of goods may not be achieved under any pricing mechanism employed. Mechanisms like the ballot may substitute the pricing mechanism applied thereon. A failure of the price mechanism however, does not guarantee that the substitution would achieve an efficient allocation of goods to customers (Glaser and Lutimer 2003). The first come first serve model or system, probably the one employed at the Glastonbury music festival ticket sale, this automatically increases the demand of the product with very little probability to increase supply. Since ticket value remains constant, this effect appears to decrease product utility attained by the client. The different price mechanisms that would be applicable to the sale of festival tickets would most preferably be aimed at positively influencing individual’s rational decision-making process. The general assumption here as Braeutigam and Besanko (2013) have outlined is that consumer preference is complete or comparable among its elements, transitive and assuming money is limited to the ticket buyer, more will always be better; the cheaper the ticket the better. Looking at the situation where the event organizers limit the re sell of tickets, the final objective of attaining efficiency equilibrium would be negatively impacted upon. Product utility by clients would decrease as we well know roughly ninety percent of interested participants missed out on ticket acquisition. Ticket resale or generally a resale activity as Leslie (2010) has outlined ought to promote social welfare. On the re sell of tickets that were not fully paid after registration that is carried out a month later, a shorter time interval between the two sales events would help ease the tension and suspicion among unsuccessful applicants. That would make it look more of a second chance to applicants than a make up for failed sales. On the same issue of ticket re sale described above, the impact of limiting the resale of tickets to a pareto allocative efficiency would best be looked at through its impact on the overall demand and supply equilibrium or balance assuming the Walrasian equilibrium is to be maintained. On the one hand, a pereto efficiency balance would require that event organizers should take in only what they can handle without having to compromise any of their package endowments. An additional cost of production on the firm’s side would be inevitable. On the other hand it would be required that their total endowment (total commodities offered to the market) should not be in any excess to the total amount demanded (Krugman and Wells 2012). For an incomplete market like the sale of Glastonbury music festival ticket where the organizers are able to precisely pre determine the intersection point between demand and supply. Externalities and uncertainties are much at bay in such a case of incomplete market, typical of the festival. Hence, the impact would most probably optimize production and at the same time not undermine customer social optimal outcome. Allocative inefficiency is seen to only impart on the production, primarily associated with a firm’s input and features distributional assumptions made or taken by the firm. This further limits the firm’s capacity for profit maximization (Besanko Braeutigam 2013). Hence, some of the factors to consider in the determination of the size or magnitude of any allocative inefficiency would include but not limited to; the actual capacity to supply what is demanded by their customers, the magnitude of the existing demand and any other assumption regarding their distribution of goods demanded. Utility of a product has been cited to be of secondary consideration when in comparison to price minimization. This then further goes on to imply that a price mechanism or strategy approach towards the sale of festival tickets, would best match up or meet customer preference. To attain equilibrium, there is the need to identify all the dynamical systems that could be largely at play from the background. At the Glastonbury music festival ticket sale, out of the approximately one million one hundred thousand people demanding an entry ticket only about one hundred and thirty people acquire the tickets. The sale was open in early October and was carried out within a single day. The actual sale actually takes about half an hour (The Economist). The sale involved firstly a registration process where applicants first filled a form. This helps the organizers identify the level of demand for the event and they can compare that with the projected or estimated demand. The form provided allows festivalgoers to indicate their willingness or intention to attend future festivals. Personal information that was inclusive of the applicants visual image, featured on the applicant’s form. This was probably useful in determining the characteristics of the events targeted market hence the organizers can well plan on how to satisfy their clients fully. This would further ensure that there is direct sale of the tickets by the recommended agents or medium without the use of unwanted intermediaries or third party members. As described by Leslie, Sorensen (2010), it also helps regulate ticket prices since no room for hoarding by intermediaries was left. Incentives are also provided through a competition for registered people. This may considerably increase sales volume and even reduce the time taken for total sales hence reducing costs. The use of a registration number not more than once for a single person also ensures that there would be no re sale of tickets. At the same time, it does not limit a person from acquiring a ticket for another person since multiple tickets can be obtained through a single registration number. This allows organizers to control sales as they can set a limit to the number of tickets eligible to a single registration number. After the registration form has been submitted, a confirmation code or message is then sent back to the few lucky applicants. Tickets would most probably be allocated to applicants as they arrive back. The challenge here is that for the criteria used not being transparent to the public; it could most probably evoke mixed reactions especially from those left out. This may eventually negatively affect the morale and enthusiasm of festivalgoers as the number of those who do not take it positively increases. In conclusion, an appropriate pricing strategy best stands a chance to improve on the efficiency equilibrium for the Glastonbury music festival ticket sale. The factors, which directly touch on utility increment, could best be manipulated under an applied price mechanism since minimal price also takes a central consideration in customer or individual preference. Consumer’s rational choice aims to maximize utility and at the same time retain prices at their minimum level. Therefore, from a micro economical perspective the two alternative methods (ballot and first come first serve) would not constitute best practice. An efficient equilibrium may not be achieved under the two alternatives provided. References Braeutigam, R. and Besanko D. (2013). Microeconomics. New Jersey: Wiley. Glaser, E. and Lutimer, E, (2003). The misallocation of housing under rent control, American Economic Review, v93 (4, Sep), 1027-1046. Krugman P., and Wells, R. (2012). Microeconomics, California: Granite Hill Publishers. Leslie P. and Sorensen, A, (2010). The welfare effect of ticket resale. Available at http://faculty.haas.berkeley.edu/wolfram/InnovSem/PapersF08/resale.pdf The Economist. (2014). The economics of Glastonbury. Available at: http://www.economist.com/blogs/economist-explains/2014/06/economist-explains-14 Read More