Chapter 49: Pricing the Arts
Michael Rushton This survey presents general rules for arts organizations setting menus of prices for live performances, museum exhibitions, festivals and the like. The problem facing arts organizations is how to set prices to capture as much of the surplus generated by the events as possible. In practice, this means finding a way to offer lower prices to ‘marginal customers’ – those customers highly sensitive to price – while still collecting a higher price from the average customer, who has a relatively inelastic demand for the events. These practices are commonly known as ‘price discrimination’. Firms selling goods in perfectly competitive markets must take prices as given, and so price discrimination cannot be used, but such situations are rare in the arts, as each performance, exhibition or festival has some unique characteristics. Price discrimination can be achieved in two ways. One method is to charge different prices to different groups of customers, where it is easy for the arts organization to identify the group to which each customer belongs. This is known as direct price discrimination, or third-degree price discrimination. A common example is a performance or museum that gives a discount on the ticket price to students or to individuals above a certain age. This practice can be effective only where there is no arbitrage; students must not be able to purchase cheap tickets and resell them to those ineligible for the discount. Consider for example an arts organization selling tickets for general admission to an event, and that seeks to...
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