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Is Ticketmaster a natural monopoly?

Ticketmaster’s high fees appear to be monopoly rents, but what are the barriers to entry? Is there a network effect? The classic example of a natural monopoly is an auction site, like eBay. The buyers have to go there, because the sellers are there and vice versa. Ticketmaster has exclusive contracts with a lot of venues, so the audience and the band have to go to Ticketmaster. But what’s in it for the venues? If they went somewhere else, the bands and audience would follow. It appears to me that the situation has changed over the years. In the 80s and 90s, it was a natural monopoly. More recently, it was quite vulnerable to competition. It may have become a natural monopoly again.

In the 80s and 90s, Ticketmaster provided its phone service and physical box offices and machines. This was a big barrier to entry with gains from scale, so it was a natural monopoly. At least it was a natural monopoly in each city and there were different companies in different places. Ticketmaster bought them all up. This probably has some gains from scaling the phone system, but otherwise little immediate effect. I don’t see how that could reduce competition, since they were already local monopolies, though having fewer companies probably reduced innovation. I think this is the point that people began being outraged by their prices, so maybe the uniform geographic monopoly was useful to them. Or maybe Ticketmaster was the only company to identify and exploit the value of the monopoly.

More recently, ticket buying has shifted to the web. Web sites are a pretty low barrier to entry. Any venue can set up its own web site and take credit cards. So why do they stick with Ticketmaster and its 40% fees? In 2006, the LA Times seemed to say that Ticketmaster was quite vulnerable to competition. The key quote is

People close to Ticketmaster say that other concert companies have made similar comments about the ticketing company, only to sign new Ticketmaster deals once they got the terms and upfront payments they demanded.

If Ticketmaster is a to be believed, the competition cut into its bottom line. But it didn’t lower prices; instead it kicked the money back to the venues in the form of up-front payments. The venues have a lot to gain from competition, but I wonder how many of them noticed that? By keeping the prices fixed and structuring the discount as kickbacks, other venues might not notice what is going on. They see that, say, the 76ers switched away and came back and conclude that they should stick with Ticketmaster, when in fact switching or threatening to switch could get them a lot of money. Another reason to structure it this way is to hide it from the bands. Ticketmaster functions as a bogeyman to let the venues raise prices without giving the money to the band. Maybe there’s some game-theoretic commitment, too. The article also says that half of the fees attributed Ticketmaster were being passed on to the promoter, Live Nation. So even if direct competition wasn’t causing them problems, someone else was able to extract the rents.

More recently, Live Nation merged with Ticketmaster. That could recreate a natural monopoly. Live Nation promotes a lot of big acts, like Madonna. They probably prefer Ticketmaster venues. Thus it is harder for venues to leave Ticketmaster. Or maybe they were already able to demand monopoly rents on their own and Ticketmaster is just a side-show.

(Why do I believe the Ticketmaster quote in the LA Times article? If, as I claim, they want to keep these deals quiet, they shouldn’t mention them to the reporter. But I can’t see what good it would do to make up this particular statement, if it is false. It seems to me if they were going to make up something, that they should say that venues always come back to them and give a vague, positive explanation, perhaps about how they provide a valuable service. So I believe them because it makes them look weak. People usually lie to make themselves look strong.)

I found the LA Times article from a Steve Sailer post. He is not so interested in the economics of Ticketmaster as the psychology of public perception of monopoly and power in general. Also, a post on the economics of scalping.


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