Northwestern Finds a New Solution to the Ticket Pricing Dilemma (2014) | Hacker News Reader

Northwestern Finds a New Solution to the Ticket Pricing Dilemma (2014)

forbes.com

27 pointsbrianbreslin13 comments

"The idea was that prices would start high, and they would fall in accordance with demand and the secondary market. Unlike dynamic pricing, where prices can rise and fall and customers are stuck with the price they pay, tickets under the “Purple Pricing” plan would only fall, and customers would be refunded to pay the lowest possible price. The concept is similar to a Dutch Auction."

Another element is the bidding price during the presale round. The bid you submitted will always be active. Once the price falls to your bidding price, you will be the first to buy it.

This ensures that those most willing to pay will always get access first. And it would ensure everyone pays the same price. Intuitively, this would discourage the secondary market from speculating the price. And if they only refund the original buyer, then this will further go to harm the secondary market.

This assumes static demand the entire time leading up to the event (concert, game, etc.) the ticket is for.

In reality, demand usually peaks sometime right before the event, so you're still going to have a secondary market taking advantage of the price differential.

This is designed to eliminate the value from the secondary market, transfer it to the school, and reduce the "risk" of buying too soon.

Yes, the demand may peak at t=0 and since the price may only fall, there will still be a secondary market. However, their revenue will be much smaller. The minimum price for each ticket will be higher do to the falling mechanism. The discrepancy between what the secondary market will make is then smaller.

If demand peaks at t=0, the second market sellers are going to buy out the entire supply early where demand and price are the lowest, and then use economic hold up to inflate their prices even further. All you're doing with this system is guaranteeing that consumers who want to pay a lot of money early on are guaranteed to do so.

Considering that this is an imperfect market and the second market sellers are more knowledgeable, average consumers are going to the ones paying out here, not the resellers.

I assume you pay your bid amount immediately and then get refunded later, because otherwise you could just bid $10 zillion, get the best seats, and only end up paying whatever everybody else pays.

How is the price determined at any given moment? Do they just manually adjust it down over time until all the seats are filled, or is there an algorithm?

There is an algorithm. The initial bidding sets the starting price. Then the price drops over time until it sells out. you could bid $1M to set the price that high, but then you have to float $1M on your credit card and hope the price drops to $200 so you get $999,800 back in a refund.

May I ask if the algorithm takes into account the expected amount of revenue to be generated by the event? If someone really did bid a million, which goes toward covering some parts of needed budget, there would be less incentive to decrease the price as quickly.

haha. we asked if they just stop bidding and sell all the arena to the one ticket holder. apparently that hasn't been the case yet.

I believe the parent's objection was that different seats in a stadium have different value and this is not accounted for in the auction mechanism. I don't know how the university accounts for this but it does add a wrinkle to the auction system.

they split it by sections, not one universal fee. So you're bidding on "left upper section" and that encourages you to set your max fair price and get in early to pick the best seat in that area.

This is a nice variation on the Dutch auction!

I first learned about the Dutch Auction when Google used it during their IPO. Wall St hates it because one of the perks of being, or being connected to, an investment banker is that you get in on IPOs at a good price. With the Dutch Auction there is no initial IPO pop, and therefore investment bankers lose out on that profit opportunity.

Google uses another variation of this in Adwords. For each ad they do an internal auction, and the winning bidder pays the minimum needed to beat the second place bidder. According to game theory, the correct action for each bidder to do is to bid exactly what the ad is worth to them. Second guessing what other people bid is irrelevant.

If you care how much the other party pays, then you still have incentive to second guess their bid.

For example, in an auction fantasy football system, it is in your interest to make your opponents pay as much as possible for any bid they win. So if you believe they value a player more than you do, it could be in your interest to actually bid more than the value you place on the player in order to force them to pay their maximum bid.

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