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$2500: “A Fair Price for Hamilton”
NY Times, 23 October 2016
Gregory Mankiw
Consumers of goods and services do not typically wish that
producers charged higher prices. But that was exactly my desire on
a recent trip to New York City.
The story begins with a basic mismatch: I am a big fan of
theater, and I live just outside Boston. While Boston is a good
city for the arts, it is not the mecca that New York is.
Unfortunately, I’m in New York only a few times every year. But
when my professional or personal life takes me into the city, I
always try to squeeze a play into my schedule.
That occurred most recently over Columbus Day weekend. I was
in New York visiting colleges with my wife and younger son, who is
a high school senior. Most colleges don’t give tours on Sunday, so
we had Sunday afternoon free — perfect timing to see a
matinee.
We had no doubt about what we wanted to see. “Hamilton” had
received rave reviews from both critics and our friends who had
seen it. We had much enjoyed “In the Heights,” an earlier musical
by Lin-Manuel Miranda, the genius behind “Hamilton.” And as an
economist, I have always viewed Alexander Hamilton, the first
Treasury secretary, as one of the most important and intriguing
founding fathers.
You may have heard that “Hamilton” tickets are hard to come
by. The show is so popular that tickets from the theater sell out
quickly and far in advance. On a recent episode of “Saturday Night
Live” that Mr. Miranda was hosting, the television show’s producer,
Lorne Michaels, jokingly asked him about getting “Hamilton”
tickets. Mr. Miranda demurred.
We, however, had no problem getting tickets. Two weeks before
our trip, I logged into StubHub, the online ticket marketplace
owned by eBay. I found the performance we wanted, located some
great seats and within a few minutes was printing our
tickets.
The rub is the price. Including StubHub’s fee, I paid $2,500 a
ticket, about five times their face value. Such a large markup is
not unusual.
Now, at this point, some people might object to this price.
Terms like “scalping” and “price gouging” are pejoratives used to
demonize those who resell tickets at whatever high prices the
market will bear.
To be sure, most people can’t easily afford paying so much for
a few hours of entertainment. That is indeed lamentable. The arts
expand our horizons, and in a perfect world, everyone would have
the opportunity to see a megahit like “Hamilton.”
Yet there is another way to view the situation. It was only
because the price was so high that I was able to buy tickets at all
on such short notice. If legal restrictions or moral sanctions had
forced prices to remain close to face value, it is likely that no
tickets would have been available by the time my family got around
to planning its trip to the city.
High prices are a natural reflection of great demand and scant
supply. In a free market, in which private individuals can engage
in mutually advantageous gains from trade, they are inevitable
until demand subsides or supply expands.
The comedian Jay Leno learned this lesson some years ago. In
2009, while the economy was suffering through the Great Recession,
Mr. Leno, a car enthusiast, generously performed two free “Comedy
Stimulus” shows for unemployed workers near Detroit.
Yet zero is not, as economists put it, the equilibrium price
to see a live performance by Jay Leno. Some of the unemployed who
received free tickets tried to turn around and sell them on eBay
for about $800. When Mr. Leno learned about this, he objected, and
eBay agreed to take down offers to resell the tickets.
But why should Mr. Leno have objected? Some unemployed
workers, presumably short on cash, thought that the $800 in their
pockets was more valuable than an evening of laughs. Similarly, the
ticket buyers would voluntarily give up their $800 for a seat. The
transaction makes both buyer and seller better off. That is how
free markets are supposed to work.
The only person made worse off by the sale is, perhaps, Mr.
Leno himself. He wanted to be seen performing before an audience of
the unemployed. Doing a show for higher-income residents of
Michigan might not be viewed as altruistic, even if it left the
unemployed better off. In other words, Mr. Leno’s objection to the
eBay resale was arguably a rationally self-interested act in that
the resale impeded his ability to appear selfless to others and,
even, to himself.
Although I don’t object to ticket resales above face value,
and I think it is pernicious when others do, I was saddened by my
“Hamilton” transaction in one important way. About 80 percent of
what I paid went to the ticket reseller, rather than to Mr. Miranda
and his investors.
In the past, Mr. Miranda has objected to the automated
software that quickly buys as many tickets as it can, so they can
be resold at a profit. But there is an easy way to put these
resellers out of business: The theater can charge higher prices to
begin with.
Such a move would surely increase the show’s profitability.
From my standpoint as a theater consumer, that’s a good thing.
Future talents like Mr. Miranda would find it easier to fund their
innovative theater projects. And with more projects funded, those
consumers who don’t buy “Hamilton” tickets — perhaps deterred by
its uniquely high prices — would find a greater variety of other
shows from which to choose.
GREGORY MANKIW is a professor of economics at Harvard.