Voluntary price discrimination is not a new idea

looking for fundingAlyssa Rosenberg on crowdsourcing new movies:

One thing that’s striking about the Veronica Mars Kickstarter is that you have to give at least $35, more than four times the cost of the average American movie ticket in 2012, to get a digital download of the movie. You have to give $750 to get a ticket to the premiere of the film in Los Angeles.

An Andrew Sullivan reader says:

What I find particularly brilliant about the Rob Thomas/Veronica Mars Kickstarter project is that the producers of a good have found a way to exploit certain consumers’ higher willingness-to-pay for that good as a means of financing the good’s production.  I’m sure most of your readers have at least a vague recollection from Econ 101 of intersecting supply and demand curves, and the notion that customers towards the left of the demand curve were willing to pay more for that good than the market-clearing price.  Until now, there hasn’t really been a way to charge $50 a ticket, or $500 a ticket, to the people who really value the movie that much, while only $10 a ticket to the customer whose interest in the movie is only marginal.  But then you dangle the carrot that the movie will only exist if the customers with high willingness-to-pay step up … and suddenly you’ve found a way to tap into that enthusiasm.

Hmmm. If we could now turn to Professor Henry Hansmann, “The Role of Nonprofit EnterpriseYale Law Journal, 1980:

At first impression, it is not obvious why the performing arts are typically the product of nonprofit institutions … [and] in fact depend on voluntary contributions for a substantial part of their operating budgets. … Why is it that the organizations do not simply raise their ticket prices rather than try to coax part of the cost of the performance out of the audience in the form of donations? … In this situation contributions are, in essence, a form of voluntary price discrimination, or, in other words, a means whereby different customers can be charged different prices for the same service. … It is worth a great deal to some people to be able to see a production by, for example, the Metropolitan Opera, while for others it is worth less … If everyone could be made to pay for a ticket roughly what it is worth to him, the total receipts for a production would be much higher than if the price is set at an amount that represents its worth to the member of the audience who values it least – which is the result with a single ticket price for everybody. … Individuals can, however, simply be asked to volunteer to pay an additional sum if the ticket price is lower than the value they place on the performance, and this is, in effect, what the nonprofit performing arts groups do.

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Comments

  1. says

    More money is spent on entertainment in the USA than anything else. Think about what we do to entertain ourselves and then think about how much each of us spends, it’s mind boggling.

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