Have you tried booking tickets for Oasis yet? Or maybe decided to use the cash for a long weekend in that rather pleasant hotel in the popular Cornish seaside resort you’ve always liked the look of? Or maybe something rather more exotic involving a transatlantic flight? Whatever your fancy you might be wise to start familiarising yourself with the concept of “dynamic pricing”. That’s the phrase used to describe how a business adjusts its prices according to changing market conditions and high demand.
The reason it’s in the news this week is, of course, because of those Oasis concerts and the unsurprising fact that rather a lot of their fans tried to buy tickets. So many that the prices on Ticketmaster doubled at the last minute. And that’s why the government’s competition regulator, the Competition and Markets Authority (CMA) has launched an “urgent” review of dynamic pricing.
No doubt if you are one of those frustrated fans you will approve strongly of any measures that might save you from being ripped off. But what about that ancient concept that has existed since the dawn of capitalism that says the price of something is always determined by how many people want to buy it and how much of it is available?
Do you think it’s time to take another look at that principle?
The government clearly does. Sir Keir Starmer himself has said it is a “really important” problem and promised to a consultation to look at powers over the use of dynamic pricing strategies and the amount by which ticket touts should be allowed to raise prices.
The CMA says we should not assume that laws have been broken but they will now be engaging with Ticketmaster and gathering evidence from various other sources. It wants fans to submit evidence of their experiences in trying to buy the tickets. That might include “any screenshots they may have taken as they progressed through the purchasing process.”
This is not the first time the CMA has raised concerns about big live music or sporting events but it says this is about more than Oasis and their many fans. That’s because so-called dynamic pricing is becoming increasingly prevalent across a number of different markets and sectors. That may not automatically be unlawful but it may, says the CMA, breach consumer protection or competition law. It will investigate how much information Oasis fans were given regarding the price they would pay as they went through the process of buying tickets and, importantly, before they reached the check-out.
Ticketmaster has said that “in demand” ticket prices are agreed in advance with artists and their management and that it uses the pricing model to discourage ticket touts by setting prices closer to market value.
The CMA says there are “longstanding challenges” in the market for tickets to big events in general – including the so-called “secondary tickets” market. It says more protections are needed so that fans get a “fair deal” when they buy tickets.
One of the problems, as every fan will know, is that there are two markets. The “primary” market is just that: tickets sold for the first time at the original price determined by artists, event organisers or box offices. It’s in the “secondary” market – companies like Viagogo and SubHub – where the prices can go through the roof and, the CMA warns, there are “resale restrictions that could lead to them being turned away at the door.”
As for the government, ministers are said to want to make ticket platforms more accountable for the accuracy of advertised pricing and give more powers to the CMA to take action against sellers and event organisers that change prices at the last minute.
Ticketmaster has said that “in demand” ticket prices are agreed in advance with artists and their management and that it uses the pricing model to discourage ticket touts by setting prices closer to market value.
At the last election the Labour manifesto promised “new consumer protections on ticket resales” and said ministers would launch a consultation looking at restricting resale prices to a set percentage of their face value, as well as limiting the number of tickets that touts could list for resale.
Of course it’s not only concert promoters who use dynamic pricing. Note how hotel prices in Manchester went through the roof when the dates of the Oasis concerts were announced. And what about airlines? Bridget Phillipson, the education secretary, said she wants to stop airlines raising prices during school holidays to stop parents taking children out of class. And then there’s football.
The Football Supporters’ Association has warned clubs not to adopt dynamic pricing after two Spanish teams, Valencia and Celta Vigo, said they would start using it. The FSA said: “With impeccable timing after the Oasis fiasco, voices in football have started to float the idea of infecting football with dynamic pricing …Any underhand increases will be met with enormous opposition.”
There may or may not be a strong case against dynamic pricing but it is not illegal and the law as it stands already requires businesses to be “fair and transparent” and give accurate information. It also states that businesses should not mislead consumers about the price they must pay for a product, either by providing false or deceptive information or by leaving out important information or providing it too late.
Simon French, chief economist and head of research at the investment banker Panmure Liberum, is one of the defenders of dynamic pricing. He argues that prices send important signals about demand and supply of goods and services in an economy. Without prices that rise and fall because of imbalances in demand and supply we get left with “an economic system that is less efficient, and less responsive” and that makes the economic system more productive.
Real time data, he says, allows prices to move higher when demand is high: “Prices then move lower when supply is plentiful. This is the price mechanism allowing markets to clear and achieve an equilibrium…
Dynamic pricing often acts as a rationing device. But it also acts as an incentive for workers, machinery, and insight to be funnelled towards its most productive use. Dynamic pricing also recognises that different customers have different propensities to pay for the same product. This willingness to pay may change as dates, times, weather, and tastes change.”
French acknowledges that there are undeniably areas where this form of pricing would be unattractive in a country such as the UK. An example would be “a product seen as an essential service where there is an inability to change when and with whom to purchase. Healthcare products and basic utilities would largely fall into this category.”
He also says it should be limited where being “priced out has negative social impacts.” While dynamic pricing can help smooth out energy consumption at peak periods — and smart tariffs are almost certainly part of the answer to the energy transition — it should not lead to people being cold in their own homes.”
But it’s when it comes to the purchase of non-essential items – such as tickets for an Oasis concert – where he thinks the argument for intervening in price setting is far weaker: “Critics of price gouging by secondary sellers of Oasis tickets risk missing the uncomfortable conclusion that the Oasis promoters set the original prices far too cheap.”
He also claims that Lord’s Cricket Ground was two-thirds empty for a test match a week ago because the ticket prices were too high. And that’s the market at work: “Reselling sites are the result of a market failure, not the market failing. Politicians criticising their practice reveal only that they know more about politics than they do about economics.”
Is he right? If we want a market economy must we not simply accept that there will be occasions when demand will exceed supply to such an extent that we can’t all get what we want and dynamic pricing is the inevitable result of that?
Or is it time to bring in new laws which ban dynamic pricing and effectively buttress one of the oldest laws: “First come… first served”?
Let us know.
