Opinion by Dr Emma Howard: Would you really pay €500 for an Oasis ticket?
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We don't always rationally and objectively evaluate our willingness to pay a high price for a ticket in advance of doing so.
The announcement of an Oasis reunion tour has sent their many fans (myself included) into a frenzy of excitement. The band are set to play 14 concerts across the UK and Ireland, with Irish promotors MCD confirming that tickets for their Croke Park gigs will be priced from €86.50.
But as anyone who has waited in a virtual Ticketmaster queue for tickets to a high demand gig will know only too well, these lower price tickets tend to sell out very quickly. You can end up in a situation where the only tickets available to you are much more expensive. For example, the highest priced Coldplay tickets for their gigs in Dublin this week cost €500.
When I suggested to my husband I'd be willing to pay that much for Oasis tickets, he baulked at the idea, but I argued that my valuation was based on sound economic analysis. In case you end up being one of the lucky ones presented with tickets on Saturday morning but are faced with a countdown timer, rather than making a rash decision you need to first decide how much are you willing to pay for a ticket.
One of the key foundational concepts students learn about in microeconomics is that of consumers’ willingness to pay for a good (WTP), which is determined by a number of factors, but is independent of the price of the good. The fact that the WTP for a good is not (or should not) be determined by the price of the good is the aspect of this concept that students find most difficult to grasp.
This is because we don’t always rationally and objectively evaluate our WTP in advance of purchasing a good. Often, we look at the price, and then think about whether we are willing to pay that amount. The problem with this approach is that we are influenced by factors unrelated to how much value we will actually get from purchasing the good. Consumers are subject to cognitive biases, and flaws in our decision making process that can lead to buyer’s remorse.
Factors that should determine our WTP for a good include income (how much can we afford to pay), tastes and preferences (how much we like it), whether it is a necessity or a luxury (do we need it or just want it), and whether there are any close substitutes we could buy instead. We should consider the opportunity costs as well as the monetary costs of purchasing the good.
For example, spending €500 on an Oasis ticket might mean you can’t afford to buy a new laptop, or to go on a weekend away with friends. There’s always a trade-off; if you spend your money on one thing, you can’t spend it on something else. Considering all of these factors should help you decide your own personal maximum WTP for a ticket.
However, other factors can come into our thinking that result in biased evaluations of our WTP for a good. Some of these arise from cognitive short cuts or 'rules of thumb’ that we use to speed up the decision-making process. Anchoring bias occurs when we base our valuation of a good on a particular reference point and can cause us to overestimate the value of goods. We can be ‘anchored’ by a high price reference point, so rather than thinking objectively about our own WTP, we take the anchor price as our starting point and adjust.
Marketers use this bias to great effect. When a good is on sale, we are influenced by the original price that’s displayed. For example, if a good is reduced from €100 to €50 we are more likely to buy it than if it was simply priced at €50. Similarly, the current pricing strategy employed by music promotors of offering expensive VIP tickets for gigs increases our WTP for a ticket as the VIP prices serve as a high anchor point.
Another reason why these pricing strategies are effective is what are called framing effects. If we know that we could be offered tickets for €500, then we consider it a gain to be offered ones for
So, is my high WTP for an Oasis ticket a consequence of these biases? I would argue definitely (maybe) not. Spending money on experiences makes us much happier than spending money on material goods. Additionally, experiences that we have to wait for have the added value of anticipation, and anticipating positive events has been shown to increase well-being.
If you're one of the thousands planning on rising early Saturday to try to get tickets, determine your maximum WTP considering all the rational factors outlined here. But when considering the trade-offs, remember that experiences are worth more than stuff, and unfortunately none of us are going to live forever. In this context, the (very expensive) €300 tickets can be ‘framed’ as a gain of €200 because we might have had to pay that much more, rather than a loss of €300.
The nostalgia effect is another bias that impacts on our decision making. For those of us of a certain age, the chance to see Oasis live (again) triggers positive emotions and reminiscing of the ‘good old days’. Studies have shown that we are willing to pay more for goods when we feel nostalgic and that we are willing to wait longer for them. The nostalgia effect might cause many of us to pay high prices for tickets to gigs that we have to wait nearly a year to attend.
The views expressed here are those of the author and do not represent or reflect the views of TU Dublin.
Opinion piece for RTE Brainstorm by Emma Howard, Lecturer in the School of Accounting, Economics and Finance, TU Dublin.