{"id":1773,"date":"2014-12-29T14:05:14","date_gmt":"2014-12-29T22:05:14","guid":{"rendered":"http:\/\/www.artsjournal.com\/worth\/?p=1773"},"modified":"2014-12-29T14:05:14","modified_gmt":"2014-12-29T22:05:14","slug":"explainer-how-do-costs-affect-ticket-prices","status":"publish","type":"post","link":"https:\/\/www.artsjournal.com\/worth\/2014\/12\/explainer-how-do-costs-affect-ticket-prices\/","title":{"rendered":"Explainer: How do costs affect ticket prices?"},"content":{"rendered":"

\"When<\/a>Suppose the costs of putting on a show fall – this could be from falling rental rates for performance spaces, technological changes that reduce costs of lighting or sound, or falling labor costs (perhaps through policy changes that lower the cost of providing health insurance to employees). How will this affect ticket prices? In the short run, not at all. In the long run, ticket prices will fall.<\/p>\n

Let me define ‘short run’ as the time period over which the production schedule for the company is set: the performance dates for the rest of the season are finalized, with no room for changes. But let’s suppose the company could, if it wished, still alter its prices for remaining shows. The prices that were originally chosen were determined by optimizing at the margin. It works like this: ask ‘what does it cost the company to seat one more member of the audience?’ (we call this marginal cost<\/em>) and ‘what would we gain (or lose) in revenue if we lowered our prices to generate one more ticket sold?’ (we call this marginal revenue<\/em>). In performing arts venues where there is room to seat more customers (or in uncrowded museums, for that matter), marginal cost is virtually zero: the company is not out of pocket at all from directing one more patron to her seat. Marginal revenue depends on the nature of customer demand: how responsive is it to changes in price? As a general rule, when admission prices are very high, marginal revenue is positive: total revenue could be increased by cutting prices a bit and selling more tickets as a result. But as prices get lower, so too does marginal revenue. At some price (or set of prices if you are scaling the house), marginal revenue hits zero, and that is the price where total revenue is maximized. If marginal costs are also zero, those are the prices that maximize profits from ticket sales. Any further price cuts, while generating more sales, will actually lower<\/em> revenue (i.e., marginal revenue is negative). Profit maximizing prices occur where marginal cost equals marginal revenue. Now: what determines those numbers? Marginal cost is what it costs to seat one additional member of the audience – essentially zero. Marginal revenue depends on customer demand – how responsive is it to price changes. Changes in the cost of putting on the show in the first place – reduced labor costs, or rental costs, or heating costs, for example – affect neither marginal cost nor marginal revenue, and so, in turn, do not affect optimal ticket prices. It’s a surprising conclusion, but there it is.<\/p>\n

But costs must affect prices somehow<\/em>. Let me define ‘long run’ as that period over which there can be changes in the number of shows on offer. Extant companies look ahead to future seasons and make plans on the number of shows and performances. Entrepreneurs look into the possibilities of starting new theatre companies, or chamber orchestras. With lower production costs, shows that in the past would not have been worth it, in that sales revenue could not cover costs, start to have potential. Entrepreneurs look at lower costs, and arts demand, and decide that maybe a new company could make a go of it. In short: the supply<\/em> of shows increases if production costs fall. How does that affect ticket prices? It doesn’t affect marginal cost – the cost of seating one more audience member is still zero. But it does shift demand: with more shows available (and assuming there haven’t been lots of other changes happening simultaneously), there is less customer demand at the margin for any one specific show (since audiences now have more options from which to choose). And that brings prices down. Falling production costs make more shows profitable, supply of shows increases, and that brings down average ticket prices.<\/p>\n

Earlier this week, it was reported that Senator Chuck Schumer<\/a>\u00a0was displeased that falling fuel prices had failed to generate falling airfares. An airplane flight is something like a theatre performance: there is a high cost to putting on the show, but very low marginal cost to seating an additional customer (there is a small amount of extra fuel use from an additional passenger on an airline, but I am guessing it is small – intensive research* failed to produce a definitive answer). Over the short run, the number of flights cannot adjust very much. And in that case, falling fuel prices would have little effect on ticket prices. Over the long run, as the number of flights adjusts upwards – lower fuel prices make some routes and flights profitable that previously would not have been – prices would begin to drop with the increased supply. But it will take a while, and so the Senator needs to be patient.<\/p>\n

* I googled ‘marginal cost airline passenger’.<\/p>\n","protected":false},"excerpt":{"rendered":"

Suppose the costs of putting on a show fall – this could be from falling rental rates for performance spaces, technological changes that reduce costs of lighting or sound, or falling labor costs (perhaps through policy changes that lower the cost of providing health insurance to employees). How will this affect ticket prices? In the […]<\/p>\n","protected":false},"author":3,"featured_media":1780,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2}},"categories":[26],"tags":[],"class_list":{"0":"post-1773","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-issues","8":"entry"},"jetpack_publicize_connections":[],"jetpack_featured_media_url":"https:\/\/www.artsjournal.com\/worth\/wp-content\/uploads\/2014\/12\/airplane-2.jpeg","jetpack_shortlink":"https:\/\/wp.me\/p3dIW5-sB","jetpack_sharing_enabled":true,"jetpack-related-posts":[{"id":2664,"url":"https:\/\/www.artsjournal.com\/worth\/2021\/05\/do-we-know-how-changing-prices-affects-the-income-diversity-of-audiences\/","url_meta":{"origin":1773,"position":0},"title":"Do we know how changing prices affects the income-diversity of audiences?","author":"Michael Rushton","date":"May 13, 2021","format":false,"excerpt":"In the very first few weeks of Econ 101 students are introduced to the \"demand curve\", relating how changes to the price of a product affect the quantity demanded of the product, all other things held equal. I've spent many years drawing these on blackboards, but they are a lot\u2026","rel":"","context":"With 3 comments","block_context":{"text":"With 3 comments","link":"https:\/\/www.artsjournal.com\/worth\/2021\/05\/do-we-know-how-changing-prices-affects-the-income-diversity-of-audiences\/#comments"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/www.artsjournal.com\/worth\/wp-content\/uploads\/2021\/05\/price.jpg?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.artsjournal.com\/worth\/wp-content\/uploads\/2021\/05\/price.jpg?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.artsjournal.com\/worth\/wp-content\/uploads\/2021\/05\/price.jpg?resize=525%2C300&ssl=1 1.5x"},"classes":[]},{"id":3074,"url":"https:\/\/www.artsjournal.com\/worth\/2024\/09\/should-opera-companies-just-slash-their-ticket-prices\/","url_meta":{"origin":1773,"position":1},"title":"Should opera companies just slash their ticket prices? Updated with responses to comments","author":"Michael Rushton","date":"September 4, 2024","format":false,"excerpt":"The\u00a0Philadelphia Inquirer\u00a0reports that Opera Philadelphia is radically cutting their prices (the article is paywalled, but you get 6 months of the\u00a0Inquirer\u00a0for a buck, which is not a very high wall): In the first 48 hours after unveiling its new \u201cpick your price\u201d ticket program Tuesday morning, Opera Philadelphia sold 5,876\u2026","rel":"","context":"In "issues"","block_context":{"text":"issues","link":"https:\/\/www.artsjournal.com\/worth\/category\/issues\/"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/www.artsjournal.com\/worth\/wp-content\/uploads\/2024\/09\/image.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.artsjournal.com\/worth\/wp-content\/uploads\/2024\/09\/image.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.artsjournal.com\/worth\/wp-content\/uploads\/2024\/09\/image.png?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.artsjournal.com\/worth\/wp-content\/uploads\/2024\/09\/image.png?resize=700%2C400&ssl=1 2x, https:\/\/i0.wp.com\/www.artsjournal.com\/worth\/wp-content\/uploads\/2024\/09\/image.png?resize=1050%2C600&ssl=1 3x, https:\/\/i0.wp.com\/www.artsjournal.com\/worth\/wp-content\/uploads\/2024\/09\/image.png?resize=1400%2C800&ssl=1 4x"},"classes":[]},{"id":453,"url":"https:\/\/www.artsjournal.com\/worth\/2013\/03\/will-the-aca-cause-prices-to-rise\/","url_meta":{"origin":1773,"position":2},"title":"Will the ACA cause prices to rise?","author":"Michael Rushton","date":"March 11, 2013","format":false,"excerpt":"At Slate, Matthew Yglesias takes apart the argument by a Five Guys hamburger franchise owner that the Affordable Care Act (ACA, or \"Obamacare\"), with its requirements on employee health insurance, will drive up his prices. Yglesias says: no, if it makes sense to increase prices in light of potential increased\u2026","rel":"","context":"In "issues"","block_context":{"text":"issues","link":"https:\/\/www.artsjournal.com\/worth\/category\/issues\/"},"img":{"alt_text":"I will gladly pay you Tuesday","src":"https:\/\/i0.wp.com\/www.artsjournal.com\/worth\/wp-content\/uploads\/2013\/03\/wimpy-300x225.jpg?resize=350%2C200","width":350,"height":200},"classes":[]},{"id":1873,"url":"https:\/\/www.artsjournal.com\/worth\/2015\/03\/dynamic-pricing-and-market-segmentation-at-the-theatre-and-the-hospital\/","url_meta":{"origin":1773,"position":3},"title":"Dynamic pricing and market segmentation at the theatre (and the hospital)","author":"Michael Rushton","date":"March 23, 2015","format":false,"excerpt":"This post is about theatre pricing, from a unlikely source. Today's New York Times has a piece by Austin Frakt on hospital pricing, and whether and how changes in funding of patients through public sector programs might change hospital charges to privately insured patients. Mid-way through, the article looks for\u2026","rel":"","context":"With 2 comments","block_context":{"text":"With 2 comments","link":"https:\/\/www.artsjournal.com\/worth\/2015\/03\/dynamic-pricing-and-market-segmentation-at-the-theatre-and-the-hospital\/#comments"},"img":{"alt_text":"how much for a bed with a view?","src":"https:\/\/i0.wp.com\/www.artsjournal.com\/worth\/wp-content\/uploads\/2015\/03\/old-hospital.jpg?resize=350%2C200&ssl=1","width":350,"height":200},"classes":[]},{"id":986,"url":"https:\/\/www.artsjournal.com\/worth\/2013\/08\/whatever\/","url_meta":{"origin":1773,"position":4},"title":"Whatever","author":"Michael Rushton","date":"August 18, 2013","format":false,"excerpt":"The Washington Post reports that Forum Theater will not charge an advance price on tickets, but instead will have audience members pay after the show, whatever amount they think is right: Michael Dove, Forum\u2019s artistic director, says that he has long been concerned about what it means to be a\u2026","rel":"","context":"In "issues"","block_context":{"text":"issues","link":"https:\/\/www.artsjournal.com\/worth\/category\/issues\/"},"img":{"alt_text":"where's my director of development?","src":"https:\/\/i0.wp.com\/www.artsjournal.com\/worth\/wp-content\/uploads\/2013\/08\/busker-300x199.jpg?resize=350%2C200","width":350,"height":200},"classes":[]},{"id":1673,"url":"https:\/\/www.artsjournal.com\/worth\/2014\/11\/orchestras-and-cost-disease\/","url_meta":{"origin":1773,"position":5},"title":"Orchestras and cost disease (Updated)","author":"Michael Rushton","date":"November 4, 2014","format":false,"excerpt":"At The Clyde Fitch Report Duncan Webb has an interesting piece that looks into the future, and he sees chronic cost disease: I first read Baumol and Bowen\u2019s The Economic Dilemma of the Performing Arts some 20\u00a0years ago, almost 30 years after it was first published in 1965. The theory\u2026","rel":"","context":"In "issues"","block_context":{"text":"issues","link":"https:\/\/www.artsjournal.com\/worth\/category\/issues\/"},"img":{"alt_text":"It's not lupus","src":"https:\/\/i0.wp.com\/www.artsjournal.com\/worth\/wp-content\/uploads\/2014\/11\/cost-disease.jpg?resize=350%2C200&ssl=1","width":350,"height":200},"classes":[]}],"_links":{"self":[{"href":"https:\/\/www.artsjournal.com\/worth\/wp-json\/wp\/v2\/posts\/1773","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.artsjournal.com\/worth\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.artsjournal.com\/worth\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.artsjournal.com\/worth\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.artsjournal.com\/worth\/wp-json\/wp\/v2\/comments?post=1773"}],"version-history":[{"count":5,"href":"https:\/\/www.artsjournal.com\/worth\/wp-json\/wp\/v2\/posts\/1773\/revisions"}],"predecessor-version":[{"id":1783,"href":"https:\/\/www.artsjournal.com\/worth\/wp-json\/wp\/v2\/posts\/1773\/revisions\/1783"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.artsjournal.com\/worth\/wp-json\/wp\/v2\/media\/1780"}],"wp:attachment":[{"href":"https:\/\/www.artsjournal.com\/worth\/wp-json\/wp\/v2\/media?parent=1773"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.artsjournal.com\/worth\/wp-json\/wp\/v2\/categories?post=1773"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.artsjournal.com\/worth\/wp-json\/wp\/v2\/tags?post=1773"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}