When I heard that people were paying $800 USD for a ticket to Coldplay, I was shocked. The band is great and the concerts look fun, but the price for a 2-hour performance sounded absurd. I thought to myself: what makes the tickets so expensive? The answer is the law of supply and demand.
Low supply, high demand
The law of supply and demand involves the relationship between how much of a product is available and the desire to buy it. Going back to Coldplay: securing a seat when countless fans want to attend means there is low supply — due to scarcity — and high demand. If the artist is popular enough, demand for tickets can be greater than the number of tickets for sale, which is why people stay up late to press the buy button the second tickets are released, before they sell out in seconds.
Dynamic pricing and the seller's market
The artist's fame, event advertising, concert location and venue capacity all influence both the available supply and consumer demand. Often, dynamic pricing strategies are used where tickets are sold over several days, allowing prices to change as sellers see real-time demand. If day-one tickets sold out in minutes, day-two tickets will cost more.
This creates a seller's market: a shortage of the product being sold gives the seller pricing power, leading to crazy prices.
The takeaway
Limited supply and high demand result in increased prices. The inverse is also true — higher supply and low demand mean decreased prices.