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Fairness constraints on profit-seeking: evidence from the German club concert industry

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Abstract

Unlike Kahneman et al. (Am Econ Rev 76(4):728–741, 1986) iconic snow shovel, live music is a performance good that fans attach a particular value to. Hence, an artist’s pricing decision might differ from standard rent-seeking behavior. In this paper, I propose a model that incorporates fairness concerns into the pricing decision for concert tickets. The hypotheses derived from this model are tested on data from the German club concert industry. The results are consistent with the model: Although (1) price dispersion is the dominant pricing strategy in the club concert industry and artists prefer to perform on a Friday or Saturday night, (2) artists do not set higher prices on the weekend. These results are consistent with fairness constraints, but are difficult to explain within a standard profit maximization framework. As a third result, (3) the data reveal that ticket prices are positively correlated with a city’s number of inhabitants .

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Notes

  1. As a consequence of the so-called “Napster crisis” or “MP3 crisis” (starting in the late 1990s caused by the digitization of recorded music), revenue from live performances became a major source of a musician’s income. See, for example, Connolly and Krueger (2006), Hull et al. (2011), Mortimer et al. (2012) or DiCola (2013). To put it pointedly: Recorded music serves to promote live music, as, e.g., the results of Nguyen et al. (2014) suggest.

  2. In addition, Rosen and Rosenfield (1997) provide an adequate analytical framework.

  3. Actually, the concert price is determined by a bargaining process between the artist, the artist’s management or booking agent and the local promoter. I will discuss this issue below.

  4. See Connolly and Krueger (2006) or Courty and Pagliero (2012) for a description of the players involved in this process.

  5. Or, as Marburger (1997) points out, it is rather the entry to the event that is sold.

  6. Eckard and Smith (2012) find empirical support for this assumption. In detail, they show that selling one more ticket does not have any statistically significant influence on total costs. Seliger (2012) gives an overview of the parameters that commonly determine the ticket price.

  7. This definition originates from Fehr and Schmidt (1999).

  8. Note that the capacity constraint S does not substantially affect results. The main difference is that \(\forall p\) such that \(D(p)\ge S\), \(\hbox {MR}=S\).

  9. See the Investor Relations site on http://www.eventim.de/.

  10. According to the Federal Statistical Office of Germany, the monthly average household net-adjusted disposable income per capita in Germany is 1710.09 EUR (taken from https://www.destatis.de).

  11. Regression analysis shows that the mean concert price tends to be higher if the artist performs longer sequences of events (at 10 % significance level). In contrast to Decrop and Derbaix (2014), foreign artists do not charge a higher price than their national colleagues within the sample.

  12. Note that the result is robust to a sample restriction to a subset of artists with at least five events.

  13. In two personal interviews, one with a professional booking manager from the German alternative music journal VISIONS and one with an agent from a well-established German booking agency, I was informed that event managers of a band’s club tour receive an uniform ticket price proposal. It is open to the local event manager to declare, for instance, higher costs, but in general they do not deviate. The booking managers explain this procedure with artists’ concerns about the fairness expectations of their fans.

  14. Technically, this means to include Düsseldorf, Stuttgart and Frankfurt.

  15. Note that this result is mainly driven by national artists as the effect is much weaker for foreign artists alone. As a possible explanation, tours of foreign artists include fewer concerts than national artists (see Sect. 3.1) but are more focused on metropolises (a share of 41.14 % vs. a share of 21.44 %). Hence, one would expect the deviation from the mean to be rather small.

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Acknowledgments

I would like to thank Joachim Grosser, Hans-Jörg Schmerer and other faculty members for helpful comments.

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Authors and Affiliations

  1. Department of Economics, University of Hagen, Hagen, Germany

    Hendrik Sonnabend

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  1. Hendrik Sonnabend
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Correspondence to Hendrik Sonnabend.

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This article received The President’s Prize. This prize was awarded to the best paper presented by a Ph.D. or postgraduate student at the 19th International Conference on Cultural Economics, Valladolid, Spain, June 2016.

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Sonnabend, H. Fairness constraints on profit-seeking: evidence from the German club concert industry. J Cult Econ 40, 529–545 (2016). https://doi.org/10.1007/s10824-016-9282-9

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