Taylor Swift wrapped up the European leg of her Eras tour on Tuesday at London’s Wembley Stadium, delighting nearly 100,000 cheering “Swifties” — but leaving many disappointed fans who couldn’t get a ticket. One reason for this: the failure of the secondary market for the tickets. Swifties have the same psychological biases as the rest of us, so they don’t want to sell, even at crazy high prices.
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The markets work on the basis of supply and demand that determine the price. If there is more demand than supply, the price rises until fewer people are willing to buy, and more people are willing to sell. The basic problem is that Swifties are often unwilling to sell, so the price soars until demand is destroyed — reaching well over $1,000 for many cards.
I know this firsthand: my eldest daughter got tickets months ago to take my sequin-wearing wife (but not me) to the latest Eras show. Until this week, the tickets changed hands and reached more than eight times their face value. Both agreed that they would not have bought them at such a high price.
Given that they would not buy at that price, they should be willing to sell, according to traditional economic assumptions. But both rejected the idea outright – and not just because card trading is more complicated than stock trading. There must have been some ridiculous price for which they would have parted with the tickets, but even a quick profit of eight times their outlay in a matter of months didn’t make them do it.
These psychological biases apply differently in different markets
It’s not just about Taylor Swift tickets. Psychologists and behavioral-financial researchers have long established that we are all biased in favor of what we already have, and value it more simply because it is already in our hands. They call it the “ownership effect”.
Combined with status quo bias and loss aversion, this effect explains well why the secondary ticket market is dysfunctional. As three leading researchers of behavioral finance theory, Daniel Kahneman, Jack Kentsch and Richard Thaler, put it, even before Taylor Swift was born: “The disadvantages of change outweigh its advantages.”
For less popular bands, this dysfunction matters little – for example, last-minute tickets to a New Order show were still available this week, with the added benefit, for me at least, of better music. But Taylor Swift tickets were in such demand when they went on sale that they were sold in limited quantities. And so those who were assigned a ticket smiled like winners. This feeling made them even less willing to sell them later.
These psychological biases apply differently in different markets. In stocks, loss aversion often leads shareholders to dump their winners and hold on to their losers, to avoid realizing the loss—as if it isn’t real until the sale provides less cash. Chart enthusiasts like to draw lines on graphs, showing previous highs, because they provide a “resistance level” – part of the logic being that when prices come back, many investors will want to sell, because they no longer have a loss.
In reality, it’s usually better to hang on to your winners and ditch the losers, because stock prices have momentum. But to do this one must accept the fact that the losses are equally real whether the stock is held at the lower price or sold.
Taylor Swift is one of the exceptions that prove the rule
One psychological bias, which is becoming more and more obvious in the US, even if it is not yet part of behavioral finance theory, is against billionaires. Taylor Swift is one of the exceptions that proves the rule, and manages to be insanely popular and a billionaire – which is perhaps why the failure of Launching ticket sales for the US leg of her tour created so much political interest at Live Nation Entertainment, the owner of Ticketmaster.
Taylor Swift in concert at Wembley Stadium, London / photo: ap, Scott A Garfitt/Invision
The collapse of the company’s systems under the weight of demand from the Swifts, plus what was perceived as unfairness and fees, led to pressure in Congress and then to an antitrust lawsuit. The antitrust argument relies on one of the tenets of traditional economics, that competition is a good thing. Live Nation is accused by the Department of Justice of operating a monopoly to reduce competition, raise prices, limit performance and reduce innovation. (The novelty it actually has is not particularly well-loved: its app is rated 1.4 stars by Google Play Store users.)
The line of defense that the company takes is more non-economic than economic: it claims that it makes so little profit that it is impossible for it to operate a harmful monopoly. Indeed, it won’t be profitable as a result of the Live Nation and Ticketmaster merger in 2010 until 2021. Last year, it notes, its net profit margin was just 1.4%, a far cry from the 20% and more of the big tech oligopolies. It produced an 8% return on invested capital, which shouldn’t cause investors much excitement. However, shares have increased fivefold in a decade.
Whatever the outcome of the antitrust lawsuit, our personal preferences have no legislation—whether they involve Taylor Swift’s music or not.
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