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 long performance sounded absurd. I thought to myself, what makes the tickets so expensive? The answer is the law of supply and demand.
The law of supply and demand involves the relationship between how available or how much of a product there is in connection to desire for buying it. Going back to Coldplay, securing a seat when there are countless fans wanting to attend the concert means there is low supply – due to scarcity – and high demand. If the artist or band is popular enough, the demand for tickets can be greater than the number of tickets for sale, which is why people stay up late at night to press the buy button the second tickets are released before they sell out in seconds.
The artist’s fame, event advertisement, concert location and venue capacity all play a role in influencing both the available supply and consumer demand. Often dynamic pricing strategies are used where tickets are sold over the span of several days allowing prices to change as sellers see the real-time demand. If tickets on day one sold out in minutes, then the price of tickets on day two will be higher.
This in turn creates a Seller’s Market, where there is a lack of the product being sold giving the seller pricing power and leading to crazy prices.
Essentially, limited supply and high demand results in increased prices. The inverse would also be true where higher supply and low demand would mean decreased prices.