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Fairness as a Constraint on Profit Seeking Evidence from the German Club Concert Industry Hendrik Sonnabend University of Hagen September 28, 2016 Outline Introduction 1 Theory 2 The basic model Demand shock Supply shock Empirical

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SLIDE 1

Fairness as a Constraint on Profit Seeking

Evidence from the German Club Concert Industry Hendrik Sonnabend

University of Hagen

September 28, 2016

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SLIDE 2

Outline

1

Introduction

2

Theory The basic model Demand shock Supply shock

3

Empirical Evidence Descriptive statistics Econometric method and results

4

Conclusion

Hendrik Sonnabend (Univ. of Hagen) Fair Ticket Prices September 28, 2016 2 / 31

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SLIDE 3

Outline

1

Introduction

2

Theory The basic model Demand shock Supply shock

3

Empirical Evidence Descriptive statistics Econometric method and results

4

Conclusion

Hendrik Sonnabend (Univ. of Hagen) Fair Ticket Prices September 28, 2016 3 / 31

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SLIDE 4

Anecdotal evidence

“Barbra Streisand has canceled a Rome concert that would have launched her European tour [...] . Earlier this month, two consumer activist groups in Italy complained that tour promoters were charging exorbitant prices for tickets to the Rome show. They urged Rome’s city government and Italy’s Olympic Committee to deny permission for the singer to use the stadium. They said prices ranging from 150 euros (101 pounds) to 900 euros (610 pounds) were "absurd and shameful." By comparison, the best seats at Milan’s La Scala opera house run about 200 euros (135 pounds).” [...] Reuters, May 26, 2007

Hendrik Sonnabend (Univ. of Hagen) Fair Ticket Prices September 28, 2016 4 / 31

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Behavioral pricing

Behavioral pricing / Price fairness: Suppliers anticipate customers’ negative reactions to prices perceived as unfair, ... ... and hence have an incentive not to exploit their market power (at least to some extend). Prices keep rigid. Existence first demonstrated in the pioneering study by Kahneman et

  • al. (1986):

respondents are asked to judge price patterns "Dual Entitlement": unfair to exploit increased market power (→ reference price), but fair to pass increased costs (→ reference profit) willingness to "punish" unfair pricing behavior

This contribution studies the existence of fair pricing in the field using data from the German club concert industry.

Hendrik Sonnabend (Univ. of Hagen) Fair Ticket Prices September 28, 2016 5 / 31

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SLIDE 6

Behavioral pricing

Behavioral pricing / Price fairness: Suppliers anticipate customers’ negative reactions to prices perceived as unfair, ... ... and hence have an incentive not to exploit their market power (at least to some extend). Prices keep rigid. Existence first demonstrated in the pioneering study by Kahneman et

  • al. (1986):

respondents are asked to judge price patterns "Dual Entitlement": unfair to exploit increased market power (→ reference price), but fair to pass increased costs (→ reference profit) willingness to "punish" unfair pricing behavior

This contribution studies the existence of fair pricing in the field using data from the German club concert industry.

Hendrik Sonnabend (Univ. of Hagen) Fair Ticket Prices September 28, 2016 5 / 31

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SLIDE 7

Behavioral pricing

Behavioral pricing / Price fairness: Suppliers anticipate customers’ negative reactions to prices perceived as unfair, ... ... and hence have an incentive not to exploit their market power (at least to some extend). Prices keep rigid. Existence first demonstrated in the pioneering study by Kahneman et

  • al. (1986):

respondents are asked to judge price patterns "Dual Entitlement": unfair to exploit increased market power (→ reference price), but fair to pass increased costs (→ reference profit) willingness to "punish" unfair pricing behavior

This contribution studies the existence of fair pricing in the field using data from the German club concert industry.

Hendrik Sonnabend (Univ. of Hagen) Fair Ticket Prices September 28, 2016 5 / 31

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SLIDE 8

Behavioral pricing

Behavioral pricing / Price fairness: Suppliers anticipate customers’ negative reactions to prices perceived as unfair, ... ... and hence have an incentive not to exploit their market power (at least to some extend). Prices keep rigid. Existence first demonstrated in the pioneering study by Kahneman et

  • al. (1986):

respondents are asked to judge price patterns "Dual Entitlement": unfair to exploit increased market power (→ reference price), but fair to pass increased costs (→ reference profit) willingness to "punish" unfair pricing behavior

This contribution studies the existence of fair pricing in the field using data from the German club concert industry.

Hendrik Sonnabend (Univ. of Hagen) Fair Ticket Prices September 28, 2016 5 / 31

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SLIDE 9

Behavioral pricing

Behavioral pricing / Price fairness: Suppliers anticipate customers’ negative reactions to prices perceived as unfair, ... ... and hence have an incentive not to exploit their market power (at least to some extend). Prices keep rigid. Existence first demonstrated in the pioneering study by Kahneman et

  • al. (1986):

respondents are asked to judge price patterns "Dual Entitlement": unfair to exploit increased market power (→ reference price), but fair to pass increased costs (→ reference profit) willingness to "punish" unfair pricing behavior

This contribution studies the existence of fair pricing in the field using data from the German club concert industry.

Hendrik Sonnabend (Univ. of Hagen) Fair Ticket Prices September 28, 2016 5 / 31

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Concert industry

The concert industry is an appealing candidate: Artists typically face strong incentives for optimal pricing decisions (→ “MP3 crisis”, “recorded music serves to promote live music”). Prices, among other variables, are transparent and easy to observe. “Fans” differ from the standard consumer in that they attach specific value to music (“emotional connection” → expectations, risk of disappointment). Differentiated products and transport costs→ pricing power (monopolistic competition) Second-degree price discrimination (self-selection → different seat categories) and third-degree price discrimination (segmentation → different ticket prices among the cities)

Hendrik Sonnabend (Univ. of Hagen) Fair Ticket Prices September 28, 2016 6 / 31

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Concert industry

The concert industry is an appealing candidate: Artists typically face strong incentives for optimal pricing decisions (→ “MP3 crisis”, “recorded music serves to promote live music”). Prices, among other variables, are transparent and easy to observe. “Fans” differ from the standard consumer in that they attach specific value to music (“emotional connection” → expectations, risk of disappointment). Differentiated products and transport costs→ pricing power (monopolistic competition) Second-degree price discrimination (self-selection → different seat categories) and third-degree price discrimination (segmentation → different ticket prices among the cities)

Hendrik Sonnabend (Univ. of Hagen) Fair Ticket Prices September 28, 2016 6 / 31

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SLIDE 12

Concert industry

The concert industry is an appealing candidate: Artists typically face strong incentives for optimal pricing decisions (→ “MP3 crisis”, “recorded music serves to promote live music”). Prices, among other variables, are transparent and easy to observe. “Fans” differ from the standard consumer in that they attach specific value to music (“emotional connection” → expectations, risk of disappointment). Differentiated products and transport costs→ pricing power (monopolistic competition) Second-degree price discrimination (self-selection → different seat categories) and third-degree price discrimination (segmentation → different ticket prices among the cities)

Hendrik Sonnabend (Univ. of Hagen) Fair Ticket Prices September 28, 2016 6 / 31

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Concert industry

The concert industry is an appealing candidate: Artists typically face strong incentives for optimal pricing decisions (→ “MP3 crisis”, “recorded music serves to promote live music”). Prices, among other variables, are transparent and easy to observe. “Fans” differ from the standard consumer in that they attach specific value to music (“emotional connection” → expectations, risk of disappointment). Differentiated products and transport costs→ pricing power (monopolistic competition) Second-degree price discrimination (self-selection → different seat categories) and third-degree price discrimination (segmentation → different ticket prices among the cities)

Hendrik Sonnabend (Univ. of Hagen) Fair Ticket Prices September 28, 2016 6 / 31

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SLIDE 14

Concert industry

The concert industry is an appealing candidate: Artists typically face strong incentives for optimal pricing decisions (→ “MP3 crisis”, “recorded music serves to promote live music”). Prices, among other variables, are transparent and easy to observe. “Fans” differ from the standard consumer in that they attach specific value to music (“emotional connection” → expectations, risk of disappointment). Differentiated products and transport costs→ pricing power (monopolistic competition) Second-degree price discrimination (self-selection → different seat categories) and third-degree price discrimination (segmentation → different ticket prices among the cities)

Hendrik Sonnabend (Univ. of Hagen) Fair Ticket Prices September 28, 2016 6 / 31

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SLIDE 15

Concert industry

The concert industry is an appealing candidate: Artists typically face strong incentives for optimal pricing decisions (→ “MP3 crisis”, “recorded music serves to promote live music”). Prices, among other variables, are transparent and easy to observe. “Fans” differ from the standard consumer in that they attach specific value to music (“emotional connection” → expectations, risk of disappointment). Differentiated products and transport costs→ pricing power (monopolistic competition) Second-degree price discrimination (self-selection → different seat categories) and third-degree price discrimination (segmentation → different ticket prices among the cities)

Hendrik Sonnabend (Univ. of Hagen) Fair Ticket Prices September 28, 2016 6 / 31

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Price discrimination

Studies on second-degree price discrimination [Connolly and Krueger (2006), Eckard and Smith (2012), Courty and Pagliero (2012, 2014)] give a mixed picture:

Price differentiation in seat categories exists, but . . . . . . with strong heterogeneity concerning the concrete shape and . . . to a lesser extent than classic economic theory predicts.

Previous work on third-degree price discrimination is limited to Courty and Pagliero (2014). Authors find evidence for the existence of varying price strategies during a tour, but along with noticeable heterogeneity among artists. One possible explanations: fairness concerns on both sides of the market.

Hendrik Sonnabend (Univ. of Hagen) Fair Ticket Prices September 28, 2016 7 / 31

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SLIDE 17

Price discrimination

Studies on second-degree price discrimination [Connolly and Krueger (2006), Eckard and Smith (2012), Courty and Pagliero (2012, 2014)] give a mixed picture:

Price differentiation in seat categories exists, but . . . . . . with strong heterogeneity concerning the concrete shape and . . . to a lesser extent than classic economic theory predicts.

Previous work on third-degree price discrimination is limited to Courty and Pagliero (2014). Authors find evidence for the existence of varying price strategies during a tour, but along with noticeable heterogeneity among artists. One possible explanations: fairness concerns on both sides of the market.

Hendrik Sonnabend (Univ. of Hagen) Fair Ticket Prices September 28, 2016 7 / 31

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SLIDE 18

Price discrimination

Studies on second-degree price discrimination [Connolly and Krueger (2006), Eckard and Smith (2012), Courty and Pagliero (2012, 2014)] give a mixed picture:

Price differentiation in seat categories exists, but . . . . . . with strong heterogeneity concerning the concrete shape and . . . to a lesser extent than classic economic theory predicts.

Previous work on third-degree price discrimination is limited to Courty and Pagliero (2014). Authors find evidence for the existence of varying price strategies during a tour, but along with noticeable heterogeneity among artists. One possible explanations: fairness concerns on both sides of the market.

Hendrik Sonnabend (Univ. of Hagen) Fair Ticket Prices September 28, 2016 7 / 31

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SLIDE 19

Price discrimination

Studies on second-degree price discrimination [Connolly and Krueger (2006), Eckard and Smith (2012), Courty and Pagliero (2012, 2014)] give a mixed picture:

Price differentiation in seat categories exists, but . . . . . . with strong heterogeneity concerning the concrete shape and . . . to a lesser extent than classic economic theory predicts.

Previous work on third-degree price discrimination is limited to Courty and Pagliero (2014). Authors find evidence for the existence of varying price strategies during a tour, but along with noticeable heterogeneity among artists. One possible explanations: fairness concerns on both sides of the market.

Hendrik Sonnabend (Univ. of Hagen) Fair Ticket Prices September 28, 2016 7 / 31

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SLIDE 20

Outline

1

Introduction

2

Theory The basic model Demand shock Supply shock

3

Empirical Evidence Descriptive statistics Econometric method and results

4

Conclusion

Hendrik Sonnabend (Univ. of Hagen) Fair Ticket Prices September 28, 2016 8 / 31

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The model

Artist’s profits are defined by Π = p · D (p) − C, (1) Concert-goers / fans have a concept of a fair price pF: pF = C S . (2) Utility derived from a given concert equals ui = ω · θi − max [α · (p − pF) ; 0] , (3)

S: venue capacity, θi ∼ F (θ): direct utility of a concert, α > 0: sensitivity parameter, ω ≥ 1: consumption value.

Hendrik Sonnabend (Univ. of Hagen) Fair Ticket Prices September 28, 2016 9 / 31

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The model

Artist’s profits are defined by Π = p · D (p) − C, (1) Concert-goers / fans have a concept of a fair price pF: pF = C S . (2) Utility derived from a given concert equals ui = ω · θi − max [α · (p − pF) ; 0] , (3)

S: venue capacity, θi ∼ F (θ): direct utility of a concert, α > 0: sensitivity parameter, ω ≥ 1: consumption value.

Hendrik Sonnabend (Univ. of Hagen) Fair Ticket Prices September 28, 2016 9 / 31

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SLIDE 23

The model

Artist’s profits are defined by Π = p · D (p) − C, (1) Concert-goers / fans have a concept of a fair price pF: pF = C S . (2) Utility derived from a given concert equals ui = ω · θi − max [α · (p − pF) ; 0] , (3)

S: venue capacity, θi ∼ F (θ): direct utility of a concert, α > 0: sensitivity parameter, ω ≥ 1: consumption value.

Hendrik Sonnabend (Univ. of Hagen) Fair Ticket Prices September 28, 2016 9 / 31

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Price rigidity

Hendrik Sonnabend (Univ. of Hagen) Fair Ticket Prices September 28, 2016 10 / 31

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A demand shock with fairness constraint

Hendrik Sonnabend (Univ. of Hagen) Fair Ticket Prices September 28, 2016 11 / 31

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Supply shocks

The fair price increases in C: pF = C S It follows that the optimal price p∗ increases in C.

Hendrik Sonnabend (Univ. of Hagen) Fair Ticket Prices September 28, 2016 12 / 31

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Supply shocks

The fair price increases in C: pF = C S It follows that the optimal price p∗ increases in C.

Hendrik Sonnabend (Univ. of Hagen) Fair Ticket Prices September 28, 2016 12 / 31

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A supply shock with fairness constraint

Hendrik Sonnabend (Univ. of Hagen) Fair Ticket Prices September 28, 2016 13 / 31

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Main prediction

Price discrimination might exist in the concert industry, . . . . . . but might be limited to an adaption to differences in costs. Results correspond precisely with Kahneman et al. (1986):

Respondents consider a price increase as a reaction to a positive demand shock to be unfair (like a higher price for snow shovels after a blizzard), but . . . consider an adjustment to an increase in input prices as fair.

Prediction is tested in the empirical part with data from the German club concert industry.

small venue compared to arena or stadium

  • ne-for-all price → unit tour price strategy becomes directly apparent

greater proximity to fans

Hendrik Sonnabend (Univ. of Hagen) Fair Ticket Prices September 28, 2016 14 / 31

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Main prediction

Price discrimination might exist in the concert industry, . . . . . . but might be limited to an adaption to differences in costs. Results correspond precisely with Kahneman et al. (1986):

Respondents consider a price increase as a reaction to a positive demand shock to be unfair (like a higher price for snow shovels after a blizzard), but . . . consider an adjustment to an increase in input prices as fair.

Prediction is tested in the empirical part with data from the German club concert industry.

small venue compared to arena or stadium

  • ne-for-all price → unit tour price strategy becomes directly apparent

greater proximity to fans

Hendrik Sonnabend (Univ. of Hagen) Fair Ticket Prices September 28, 2016 14 / 31

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SLIDE 31

Main prediction

Price discrimination might exist in the concert industry, . . . . . . but might be limited to an adaption to differences in costs. Results correspond precisely with Kahneman et al. (1986):

Respondents consider a price increase as a reaction to a positive demand shock to be unfair (like a higher price for snow shovels after a blizzard), but . . . consider an adjustment to an increase in input prices as fair.

Prediction is tested in the empirical part with data from the German club concert industry.

small venue compared to arena or stadium

  • ne-for-all price → unit tour price strategy becomes directly apparent

greater proximity to fans

Hendrik Sonnabend (Univ. of Hagen) Fair Ticket Prices September 28, 2016 14 / 31

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SLIDE 32

Main prediction

Price discrimination might exist in the concert industry, . . . . . . but might be limited to an adaption to differences in costs. Results correspond precisely with Kahneman et al. (1986):

Respondents consider a price increase as a reaction to a positive demand shock to be unfair (like a higher price for snow shovels after a blizzard), but . . . consider an adjustment to an increase in input prices as fair.

Prediction is tested in the empirical part with data from the German club concert industry.

small venue compared to arena or stadium

  • ne-for-all price → unit tour price strategy becomes directly apparent

greater proximity to fans

Hendrik Sonnabend (Univ. of Hagen) Fair Ticket Prices September 28, 2016 14 / 31

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SLIDE 33

Outline

1

Introduction

2

Theory The basic model Demand shock Supply shock

3

Empirical Evidence Descriptive statistics Econometric method and results

4

Conclusion

Hendrik Sonnabend (Univ. of Hagen) Fair Ticket Prices September 28, 2016 15 / 31

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SLIDE 34

Data and descriptive statistics

The data originates from eventim.de (European leader in live entertainment ticketing), section: club concerts. 1490 events from July 2015 to November 2016 performed by 226 artists in 549 venues (= clubs) located in 234 different German cities and some venues in neighbouring countries. Prices:

Percentiles Mean

  • Std. Dev.

Min 0.25 0.50 0.75 Max Concert price [€] 22.83 5.44 11 18.65 22.45 27.4 43.50 Tour (Concerts, n) 6.59 4.85 2 3 5 8 26

Hendrik Sonnabend (Univ. of Hagen) Fair Ticket Prices September 28, 2016 16 / 31

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SLIDE 35

Data and descriptive statistics

The data originates from eventim.de (European leader in live entertainment ticketing), section: club concerts. 1490 events from July 2015 to November 2016 performed by 226 artists in 549 venues (= clubs) located in 234 different German cities and some venues in neighbouring countries. Prices:

Percentiles Mean

  • Std. Dev.

Min 0.25 0.50 0.75 Max Concert price [€] 22.83 5.44 11 18.65 22.45 27.4 43.50 Tour (Concerts, n) 6.59 4.85 2 3 5 8 26

Hendrik Sonnabend (Univ. of Hagen) Fair Ticket Prices September 28, 2016 16 / 31

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SLIDE 36

Data and descriptive statistics

The data originates from eventim.de (European leader in live entertainment ticketing), section: club concerts. 1490 events from July 2015 to November 2016 performed by 226 artists in 549 venues (= clubs) located in 234 different German cities and some venues in neighbouring countries. Prices:

Percentiles Mean

  • Std. Dev.

Min 0.25 0.50 0.75 Max Concert price [€] 22.83 5.44 11 18.65 22.45 27.4 43.50 Tour (Concerts, n) 6.59 4.85 2 3 5 8 26

Hendrik Sonnabend (Univ. of Hagen) Fair Ticket Prices September 28, 2016 16 / 31

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Distribution of prices

100 200 300 Frequency 10 20 30 40 50 price

Distribution of prices

Hendrik Sonnabend (Univ. of Hagen) Fair Ticket Prices September 28, 2016 17 / 31

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Pricing strategy

A uniform price is set by 20 artists, a fraction of only 8.85 percent within the whole sample. ⇒ price dispersion is the dominant pricing strategy in the club concert industry!

Hendrik Sonnabend (Univ. of Hagen) Fair Ticket Prices September 28, 2016 18 / 31

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Pricing strategy

A uniform price is set by 20 artists, a fraction of only 8.85 percent within the whole sample. ⇒ price dispersion is the dominant pricing strategy in the club concert industry!

Hendrik Sonnabend (Univ. of Hagen) Fair Ticket Prices September 28, 2016 18 / 31

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Pricing behavior of the Austrian pop group “Wanda”

20 25 30 35 5 10 15 Position in the concert sequence Price p_mean Hendrik Sonnabend (Univ. of Hagen) Fair Ticket Prices September 28, 2016 19 / 31

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SLIDE 41

More concerts on the weekend

Weekday Share Total Friday or Saturday 47.05 670 (expected:) 28.57 407 Rest of the Week 52.95 754 (expected:) 71.43 1017 Concerts (47.05 percent) take place significantly more often on the weekend (Student’s t -test, p-value = 0.0000). ⇒ It seems to be a strategic decision to date concerts on a Friday or Saturday.

Hendrik Sonnabend (Univ. of Hagen) Fair Ticket Prices September 28, 2016 20 / 31

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SLIDE 42

More concerts on the weekend

Weekday Share Total Friday or Saturday 47.05 670 (expected:) 28.57 407 Rest of the Week 52.95 754 (expected:) 71.43 1017 Concerts (47.05 percent) take place significantly more often on the weekend (Student’s t -test, p-value = 0.0000). ⇒ It seems to be a strategic decision to date concerts on a Friday or Saturday.

Hendrik Sonnabend (Univ. of Hagen) Fair Ticket Prices September 28, 2016 20 / 31

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SLIDE 43

More concerts on the weekend

Weekday Share Total Friday or Saturday 47.05 670 (expected:) 28.57 407 Rest of the Week 52.95 754 (expected:) 71.43 1017 Concerts (47.05 percent) take place significantly more often on the weekend (Student’s t -test, p-value = 0.0000). ⇒ It seems to be a strategic decision to date concerts on a Friday or Saturday.

Hendrik Sonnabend (Univ. of Hagen) Fair Ticket Prices September 28, 2016 20 / 31

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Predictions

Does this strategy imply higher prices on the weekend? Classic economic theory: higher prices on the weekend due to a higher expected demand. Fairness model: allows for rigid prices when demand increases. Conjectures are tested within a regression framework.

Hendrik Sonnabend (Univ. of Hagen) Fair Ticket Prices September 28, 2016 21 / 31

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SLIDE 45

Predictions

Does this strategy imply higher prices on the weekend? Classic economic theory: higher prices on the weekend due to a higher expected demand. Fairness model: allows for rigid prices when demand increases. Conjectures are tested within a regression framework.

Hendrik Sonnabend (Univ. of Hagen) Fair Ticket Prices September 28, 2016 21 / 31

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SLIDE 46

Predictions

Does this strategy imply higher prices on the weekend? Classic economic theory: higher prices on the weekend due to a higher expected demand. Fairness model: allows for rigid prices when demand increases. Conjectures are tested within a regression framework.

Hendrik Sonnabend (Univ. of Hagen) Fair Ticket Prices September 28, 2016 21 / 31

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SLIDE 47

Predictions

Does this strategy imply higher prices on the weekend? Classic economic theory: higher prices on the weekend due to a higher expected demand. Fairness model: allows for rigid prices when demand increases. Conjectures are tested within a regression framework.

Hendrik Sonnabend (Univ. of Hagen) Fair Ticket Prices September 28, 2016 21 / 31

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SLIDE 48

Econometric method

Artist fixed effects model of the price dispersion given by

PDit = γ0 +γ1WEEKENDt +γ2METRt +γ3 (WEEKENDt × CITYt)+γ4NUM +γi +ǫit,

PDit is the deviation from the mean of ticket prices set by each artist i

  • n a concert t ∈ [1, . . . , n],

γi an artist fixed effect, WEEKENDt and METRt are dummy variables, NUM works like a time dummy accounting for the position t of the concert within the sequence of live performances (i.e., the tour), ǫit is the error term which captures all other factors that affect PDit. ⇒ γ0 (the constant), γ1, γ2 , γ3 and γ4 are unknown parameters to be estimated using ordinary least squares (OLS).

Hendrik Sonnabend (Univ. of Hagen) Fair Ticket Prices September 28, 2016 22 / 31

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SLIDE 49

Regression results

Dependent variable: PD (1) (2) (3) (4) (5) (6) WEEKEND 0.176 0.193 0.101 0.161 0.177 0.060 (0.120) (0.134) (0.143) (0.122) (0.144) (1.227) METR 0.841** 1.119** 0.978**

  • (0.129)

(0.174) (0.196)

  • WEEKEND * METR
  • 0.362
  • (0.288)
  • ln(Population)
  • 0.123**

0.185** 0.180*

  • (0.048)

(0.071) (0.088) WEEKEND * ln(Pop)

  • 0.009
  • (0.097)

Constant

  • 0.523**
  • 0.641**
  • 0.592**
  • 1.816**
  • 2.671**
  • 2.600**

(0.181) (0.210) (0.205) (0.652) (0.947) (1.15) NUM included? Yes Yes Yes Yes Yes Yes Artist fixed effects? No Yes Yes No Yes Yes R2 0.0427 0.0421 0.0426 0.0218 0.0208 0.0208 Number of observations 1424 1424 1424 1424 1424 1424

Notes: The table shows OLS estimates. Standard errors are in parentheses. * indicates significance at 5% level and ** indicates significance at 1% level. Hendrik Sonnabend (Univ. of Hagen) Fair Ticket Prices September 28, 2016 23 / 31

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SLIDE 50

Quantile regression approach

Quantile regression technique helps to examine the relationship between the regressor WEEKEND and the depending variable PD at different points of PD. Dependent variable: PD .25 Quantile .50 Quantile .75 Quantile WEEKEND 0.091 0.138 0.333* (0.128) (0.079) (0.154) METR 0.741** 0.513** 1.000** (0.143) (0.089) (0.173) Constant

  • 1.416**
  • 0.650**

0.410 (0.183) (0.113) (0.221) NUM included? Yes Yes Yes Pseudo R2 0.0294 0.0193 0.0353 Number of observations 1424 1424 1424

Notes: The table shows OLS estimates. Standard errors are in parentheses. * indicates significance at 5% level and ** indicates significance at 1% level.

Hendrik Sonnabend (Univ. of Hagen) Fair Ticket Prices September 28, 2016 24 / 31

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SLIDE 51

Quantile regression approach

Quantile regression technique helps to examine the relationship between the regressor WEEKEND and the depending variable PD at different points of PD. Dependent variable: PD .25 Quantile .50 Quantile .75 Quantile WEEKEND 0.091 0.138 0.333* (0.128) (0.079) (0.154) METR 0.741** 0.513** 1.000** (0.143) (0.089) (0.173) Constant

  • 1.416**
  • 0.650**

0.410 (0.183) (0.113) (0.221) NUM included? Yes Yes Yes Pseudo R2 0.0294 0.0193 0.0353 Number of observations 1424 1424 1424

Notes: The table shows OLS estimates. Standard errors are in parentheses. * indicates significance at 5% level and ** indicates significance at 1% level.

Hendrik Sonnabend (Univ. of Hagen) Fair Ticket Prices September 28, 2016 24 / 31

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SLIDE 52

Regression results (again)

Dependent variable: PD (1) (2) (3) (4) (5) (6) WEEKEND 0.176 0.193 0.101 0.161 0.177 0.060 (0.120) (0.134) (0.143) (0.122) (0.144) (1.227) METR 0.841** 1.119** 0.978**

  • (0.129)

(0.174) (0.196)

  • WEEKEND * METR
  • 0.362
  • (0.288)
  • ln(Population)
  • 0.123**

0.185** 0.180*

  • (0.048)

(0.071) (0.088) WEEKEND * ln(Pop)

  • 0.009
  • (0.097)

Constant

  • 0.523**
  • 0.641**
  • 0.592**
  • 1.816**
  • 2.671**
  • 2.600**

(0.181) (0.210) (0.205) (0.652) (0.947) (1.15) NUM included? Yes Yes Yes Yes Yes Yes Artist fixed effects? No Yes Yes No Yes Yes R2 0.0427 0.0421 0.0426 0.0218 0.0208 0.0208 Number of observations 1424 1424 1424 1424 1424 1424

Notes: The table shows OLS estimates. Standard errors are in parentheses. * indicates significance at 5% level and ** indicates significance at 1% level. Hendrik Sonnabend (Univ. of Hagen) Fair Ticket Prices September 28, 2016 25 / 31

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SLIDE 53

Further properties of the main result

“Weekend - result” is robust to a sample restriction to a subset of artists with at least 5 events and holds for all genres except for “comedy/cabaret“. “Big City - effect” is mainly driven by national artists as the effect is much weaker for foreign artists alone. Possible explanation: Tours of foreign artists include less concerts than national artists (mean of 4.69 vs. mean of 8.30) . . .

Hendrik Sonnabend (Univ. of Hagen) Fair Ticket Prices September 28, 2016 26 / 31

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SLIDE 54

Further properties of the main result

“Weekend - result” is robust to a sample restriction to a subset of artists with at least 5 events and holds for all genres except for “comedy/cabaret“. “Big City - effect” is mainly driven by national artists as the effect is much weaker for foreign artists alone. Possible explanation: Tours of foreign artists include less concerts than national artists (mean of 4.69 vs. mean of 8.30) . . .

Hendrik Sonnabend (Univ. of Hagen) Fair Ticket Prices September 28, 2016 26 / 31

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SLIDE 55

Further properties of the main result

“Weekend - result” is robust to a sample restriction to a subset of artists with at least 5 events and holds for all genres except for “comedy/cabaret“. “Big City - effect” is mainly driven by national artists as the effect is much weaker for foreign artists alone. Possible explanation: Tours of foreign artists include less concerts than national artists (mean of 4.69 vs. mean of 8.30) . . .

Hendrik Sonnabend (Univ. of Hagen) Fair Ticket Prices September 28, 2016 26 / 31

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SLIDE 56

Tour length by national and foreign artists

.05 .1 .15 .2 Density 5 10 15 20 25 tour length foreign national

kernel = epanechnikov, bandwidth = 0.7861

Kernel density estimate

Hendrik Sonnabend (Univ. of Hagen) Fair Ticket Prices September 28, 2016 27 / 31

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SLIDE 57

Weekend and city preferences by nationality

. . . but are more focused on metropolises (see table). = ⇒ Hence, one would expect the “Big City - effect” to be rather small, simply because the “counterweight” (ticket prices of small city concerts) is missing! Variable Foreign National Diff. t-statistic Weekend 0.332 0.533

  • 0.201
  • 7.131**

(0.023) (0.016) (0.028) Metropolis 0.411 0.214 0.197 7.847** (0.024) (0.013) (0.025)

Notes: This table reports t-tests on the null of equality between the propensity to perform (a) on the weekend and (b) in one of the five biggest cities for foreign and national artists. Standard errors are in parentheses. * indicates significance at 5% level and ** indicates significance at 1% level.

Hendrik Sonnabend (Univ. of Hagen) Fair Ticket Prices September 28, 2016 28 / 31

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SLIDE 58

Outline

1

Introduction

2

Theory The basic model Demand shock Supply shock

3

Empirical Evidence Descriptive statistics Econometric method and results

4

Conclusion

Hendrik Sonnabend (Univ. of Hagen) Fair Ticket Prices September 28, 2016 29 / 31

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SLIDE 59

Conclusion

Fair pricing approach indicates:

Artists might refrain from taking advantage of positive demand shocks. Costs adjustments are tolerated.

Data suggests that fair pricing exists in the German club concert industry:

Although price dispersion is the dominant pricing strategy in the club concert industry and . . . . . . artists prefer to perform the weekend, . . .

1 . . . artists do not set higher prices on the weekend (except for large

price deviations) ...

2 In addition, ticket prices are positively correlated with a city’s number

  • f inhabitants.

Both findings likewise can be explained by the proposed fairness model and confirms Kahneman et al.’s (1986) "Dual Entitlement" principle.

Hendrik Sonnabend (Univ. of Hagen) Fair Ticket Prices September 28, 2016 30 / 31

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SLIDE 60

Conclusion

Fair pricing approach indicates:

Artists might refrain from taking advantage of positive demand shocks. Costs adjustments are tolerated.

Data suggests that fair pricing exists in the German club concert industry:

Although price dispersion is the dominant pricing strategy in the club concert industry and . . . . . . artists prefer to perform the weekend, . . .

1 . . . artists do not set higher prices on the weekend (except for large

price deviations) ...

2 In addition, ticket prices are positively correlated with a city’s number

  • f inhabitants.

Both findings likewise can be explained by the proposed fairness model and confirms Kahneman et al.’s (1986) "Dual Entitlement" principle.

Hendrik Sonnabend (Univ. of Hagen) Fair Ticket Prices September 28, 2016 30 / 31

slide-61
SLIDE 61

Conclusion

Fair pricing approach indicates:

Artists might refrain from taking advantage of positive demand shocks. Costs adjustments are tolerated.

Data suggests that fair pricing exists in the German club concert industry:

Although price dispersion is the dominant pricing strategy in the club concert industry and . . . . . . artists prefer to perform the weekend, . . .

1 . . . artists do not set higher prices on the weekend (except for large

price deviations) ...

2 In addition, ticket prices are positively correlated with a city’s number

  • f inhabitants.

Both findings likewise can be explained by the proposed fairness model and confirms Kahneman et al.’s (1986) "Dual Entitlement" principle.

Hendrik Sonnabend (Univ. of Hagen) Fair Ticket Prices September 28, 2016 30 / 31

slide-62
SLIDE 62

Conclusion

Fair pricing approach indicates:

Artists might refrain from taking advantage of positive demand shocks. Costs adjustments are tolerated.

Data suggests that fair pricing exists in the German club concert industry:

Although price dispersion is the dominant pricing strategy in the club concert industry and . . . . . . artists prefer to perform the weekend, . . .

1 . . . artists do not set higher prices on the weekend (except for large

price deviations) ...

2 In addition, ticket prices are positively correlated with a city’s number

  • f inhabitants.

Both findings likewise can be explained by the proposed fairness model and confirms Kahneman et al.’s (1986) "Dual Entitlement" principle.

Hendrik Sonnabend (Univ. of Hagen) Fair Ticket Prices September 28, 2016 30 / 31

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SLIDE 63

Thank you!

Hendrik Sonnabend (Univ. of Hagen) Fair Ticket Prices September 28, 2016 31 / 31