(2018) A Level H2 Econs Paper 2 Essay Q1

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1. The average price of tickets for two concerts performed by singer-songwriter Ed Sheeran in November 2017 at the Singapore Indoor Stadium was S$180. Tickets went on sale six months earlier and both concerts sold out almost immediately. Some tickets were later being offered for resale at prices well above their face value. 
 
(a) Using supply and demand curves, explain why there is an excess demand for tickets and why there is a high resale price. 
 

Setting the context 

1. Average price for ‘two concerts’ suggests the ability to hold more concerts if conditions are ‘ideal’ 

2. Generally, prices are fixed – and concert organizers may not be able to adequately gauge demand for a concert in various markets 

What causes the excess demand for tickets 

1. Concert organisers have to ‘fix’ a price for the sale of tickets before releasing tickets for sale in the market (typically through online booking sites) 

2. This means that more than often, concert organisers do not actually have a good idea of what ‘actual demand’ for a good is. 

3. There will be situations, especially for popular singers like Ed Sheeran – the demand can be grossly underestimated. 

4. This will lead to Pfixed (the set price) to be lower than Pe (which would be what buyers would be willing to pay) 

5. Effectively this act like a price ceiling 

6. At a lower price, consumers are willing to consume up to Qd, while the quantity supplied will be at Qs 

7. As Qd > Qs there will be a shortage 

8. Effectively – the set price is like a price ceiling that is imposed below by the concert organizer below the equilibrium price because there is no surefire way for the concert organizer to have perfect information on how much demand to expect for each specific market 

Why there is a high resale price 

1. In the case of a price ceiling, the resulting shortage usually results in a black market usually fulfilled through illegal resale 

2. In this case, the concert version of a ‘black market’ is resale of the concert tickets by scalpers who profit from selling the tickets in a secondary market at a higher price for those who are willing to pay more than Pfixed, i.e. Pe for the tickets 

(b) Discuss the possible strategies that concert organisers could use to improve the market outcome for this type of concert for producers and consumers. [15]

Gather more information relating to the demand 

1. The concert organisers can better determine a ‘correct’ price to set by doing market research. Such market research can include finding out the number of Ed Sheeran fans present, income levels of consumers in the country and how much are they willing to pay. 

2. While such factors cannot be easily estimated and aggregated, we can use past concerts as a gauge for the eventual demand for future concerts. 

3. With better information, they can better determine a ‘correct’ price to sell at based on the number of concerts that they are willing to hold. 

4. It is almost impossible to gain ‘perfect information’ as conditions can change very quickly (think: COVID-19 & impact on incomes – how quickly that changed) 

Increase the number of concerts held 

1. Given the ‘now given’ knowledge of excess demand at such a price level – we now know that there will be excess demand for Ed Sheeran concerts given such a price point – and that 2 concerts will not be possible to satisfy the present demand 

2. Increasing the number of concerts can allow better outcomes for both producers and consumers for concerts with ‘excess demand’. More consumers will be able to enjoy the concert at the same price without resorting to the ‘secondary market’ while the producers will be able to gain an increase in revenue from holding extra concerts. 

3. Again, deciding the exact number of concerts to hold is key – if an excessive number of concerts are held, there can possibly be a surplus of seats leading to a ‘sorry sight’ of a half-filled concert. 

Carry out price discrimination 

1. Concert organisers can also consider carrying out price discrimination 

2. Third degree price discrimination can be carried out through ‘early-bird’ pricing 

3. Tickets can be released a year in advance at a lower price where demand can be rather ‘price-elastic’, and towards a later date, release tickets at a higher price when demand becomes more ‘price inelastic’ 

4. This will increase the total revenue of producers and also better segment different groups of consumers 

5. Alternatively – concert organisers can try to segment the market by making a determination between fans & casual concert-goers. There are several ways to do this (for example – signed albums for fans who are willing to pay more, no significant increase in costs) 

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