Rockonomics: Economics & Public
Policy in the Rock & Roll Industry
Alan B. Krueger
• Economics of Ticket Pricing
• Industry Trends
• Long-Run Explanations
Superstar Model
Baumol & Bowen’s Disease
Wealth Effects
• Short-Run Explanations
Concentration
Complimentary Goods
Under Priced Asset
“Somebody said to me, ‘But the Beatles were
antimaterialistic.’ That’s a huge myth. John and I
literally used to sit down and say, ‘Now, let’s write a
swimming pool.”
-- Paul McCartney
“[I]n some fashion, I help people hold on to their own
humanity, if I'm doing my job right.”
-- Bruce Springsteen
“I don’t see how carving out the best seats and
charging a lot more for them has anything to do with
rock & roll.”
-- Tom Petty
• To maximize short run profit  “Price Discriminate”
• Charge more to those who are less “price sensitive”
• Extreme example is variation in prices for airline seats
• Don’t go overboard because of tie-in sales & fan loyalty
Seven Lessons from Super Bowl Sunday
New York Times
• List price was $325 in 2000;
market price was around $2,500
• Secondary market develops
if price too low, but its size can
be exaggerated (20%)
• Endowment effect
• NFL could raise short-run profit by
raising prices
• But NFL wants to reward loyal fans
to build enterprise
• Besides, 60% of $4 billion of
football revenue from TV
• “Gift Exchange”
Fi gur e 1: A v e r a ge P r i c e pe r Ti c k e t a nd Ov e r a l l I nf l a t i on R a t e , 19 8 1- 2 0 0 3
60
50
Avg.
Price
40
30
CPI
20
10
1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Fi gur e 1: A v e r a ge P r i c e pe r Ti c k e t , H i gh a nd Low P r i c e Ti c k e t s, a nd Ov e r a l l I nf l a t i on
R a t e , 19 8 1- 2 0 0 3
60
50
Avg.
Price
40
30
CPI
20
10
1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Ticket Prices Soared Relative to Overall Price Inflation the Last 5 Years
Proportionate Price Growth
0.700
0.620
0.600
Proportionate Growth
0.500
0.400
Avg. T i cket
0.301
CPI
0.300
0.255
0.243
0.207
0.206
0.200
0.1 52
0.1 28
0.1 00
0.000
1 981 -86
1 986-91
1 991 -96
P e r i od
1 996-01
© Alan B. Krueger, 2002.
Prices are Growing Faster at the Top
Price of the 90th, 50th, and 10th Percentile - All Artists
80
60
40
20
0
1981
1986
1991
year
1996
2001 2003
Further Analysis
• October 2001 edition of
Rolling Stone’s Encyclopedia
of Rock and Roll
• Consistent universe of artists
• 1,786 artists, from Abba to
ZZ Top; 1,274 in Pollstar
database
• Responsible for 75% of ticket
sales, 1981-2003.
• Merged on additional data:
year formed; gender; genre;
prominence (mm)
Average Price Increase Understates Rise for a Consistent Set of Artists
Average Price for Artists Listed in Rolling Stone Encyclopedia
Source: Alan Krueger’s computations based on Pollstar and BLS data.
Year
20
20
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
01
00
99
98
97
96
95
94
93
92
91
90
89
88
87
86
85
84
83
82
81
Ticket Price
Average Concert Ticket Price, Selected Artists
140
120
100
80
60
40
20
0
Year
20
20
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
01
00
99
98
97
96
95
94
93
92
91
90
89
88
87
86
85
84
83
82
81
Ticket Price
Average Concert Ticket Price, Selected Artists
140
120
100
80
60
40
20
0
Year
20
20
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
01
00
99
98
97
96
95
94
93
92
91
90
89
88
87
86
85
84
83
82
81
Ticket Price
Average Concert Ticket Price, Selected Artists
140
120
100
80
60
40
20
0
Year
20
20
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
01
00
99
98
97
96
95
94
93
92
91
90
89
88
87
86
85
84
83
82
81
Ticket Price
Average Concert Ticket Price, Selected Artists
140
120
100
80
60
40
20
0
Year
20
20
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
01
00
99
98
97
96
95
94
93
92
91
90
89
88
87
86
85
84
83
82
81
Ticket Price
Average Concert Ticket Price, Selected Artists
140
120
100
80
60
40
20
0
Year
20
20
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
01
00
99
98
97
96
95
94
93
92
91
90
89
88
87
86
85
84
83
82
81
Ticket Price
Average Concert Ticket Price, Selected Artists
140
120
100
80
60
40
20
0
Year
20
20
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
01
00
99
98
97
96
95
94
93
92
91
90
89
88
87
86
85
84
83
82
81
Ticket Price
Average Concert Ticket Price, Selected Artists
140
120
100
80
60
40
20
0
Year
20
20
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
01
00
99
98
97
96
95
94
93
92
91
90
89
88
87
86
85
84
83
82
81
Ticket Price
Average Concert Ticket Price, Selected Artists
140
120
100
80
60
40
20
0
Year
20
20
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
01
00
99
98
97
96
95
94
93
92
91
90
89
88
87
86
85
84
83
82
81
Ticket Price
Average Concert Ticket Price, Selected Artists
140
120
100
80
60
40
20
0
Year
20
20
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
01
00
99
98
97
96
95
94
93
92
91
90
89
88
87
86
85
84
83
82
81
Ticket Price
Average Concert Ticket Price, Selected Artists
140
120
100
80
60
40
20
0
New York
Atlanta
Salt Lake City
Anahei m
Hartford
Cincinnati
Pittsburgh
Raleigh
Charlotte
Houston
Austin
Louisvi lle
Nashville
Kansas City
St. Louis
Tacoma
Portland
Ticket Price
The Boss Hardly Varies His Price Across Cities
Low, High and Average Ticket Price
Bruce Springsteen & E Street Band, April-June 2000
80
70
60
50
40
30
20
10
0
Figure 4a: Number of Shows Each Year
Rolling Stone Encyclopedia Artists
8000
Number of Shows
7000
6000
5000
4000
3000
2000
1000
0
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992 1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
Number of Tkts. Sold (Millions)
Figure 4b: Number of Tickets Sold Each Year
Rolling Stone Encyclopedia Artists
40
35
30
25
20
15
10
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
Figure 4c: Total Ticket Revenue in 2003 Dollars
Rolling Stone Encyclopedia Bands
Ticket Revenue (Millions of $)
$ 1,400
$ 1,200
$ 1,000
$ 800
$ 600
$ 400
$ 200
$0
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
Scalping and List Prices
• Survey at Springsteen “The Rising”
Concert, Oct. 6, 2003 in Philadelphia, PA.
Every ticket sold for $75.
• Stratified random cluster sample of seats.
Interviewed 858 people in the 15 minutes
before the start of the show.
• Short questionnaire on index card. Very
high response rate.
• 20-25 percent of tickets scalped. Worst
seats more likely to be resold. Average
resale price was $300.
• Springsteen gave away $3 million in
consumer surplus
Explanations For Two Key Facts Need
To Be Found:
• Long run faster
growth in concert
prices than inflation
• Short-run acceleration
in prices the last 5
years
The Economics of Superstars
• Sherwin Rosen (AER 1981)
• If undergoing heart surgery,
willing to pay a lot more for
the best surgeon over the
second best surgeon
• Imperfect substitutes 
Convex reward function
• Plus, size of market  Best
can reach more customers
• Human capital would not
have a linear effect – twice
as good paid more than
twice as much
Apply to Rock & Roll
• Superstars are known to a
broader audience because of
technology
• Improved technology
differentiates the best from the
rest and permits bigger audience
(unlike Ms. Billington)
• Demand to hear the very best is
higher
• Rewards for the best should
rise
110.0
100.0
90.0
Price of Consumer Audio Equipment
After Adjusting for Inflation (1978=100)
Price Index
80.0
70.0
60.0
50.0
40.0
30.0
20.0
1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Source: Bureau of Labor Statistics.
The Top A r t i st s a r e Ge t t i ng a La r ge r S ha r e of Tot a l Ti c k e t R e v e nue
100%
E ver ybody E l se
84%
80%
60%
T op 2-5 P er cent
62%
56%
40%
26%
Top 1%
14.6%
20%
T op 1 P er cent
0%
1982
1983 1984
1985 1986
1987 1988
1989 1990
1991 1992
1993 1994
Y ear
Source: Calculated by Alan Krueger based on Pollstar data.
1995 1996
1997 1998
1999 2000
2001 2002
2003
Novel measure of “Star
Quality”:
Amount written about
artist in Rolling Stone’s
Encyclopedia of Rock &
Roll
Measured in millimeters
to be scientific
399 mm
The Return to “Star Quality” on Log Price
Log Difference in Price for 1 Standard Deviation Change in
Star Quality for Encyclopedia Bands
0.140
0.123
Log Difference
0.120
0.100
0.091
0.080
0.060
0.047
0.052
1981-86
1987-91
0.040
0.020
0.000
1992-96
1997-03
Note: Based on multiple regressions of log annual revenue on millimeters of print,
year dummies and covariates. Sample consists of 10,043 artist/year observations.
See Table 3, col. 4.
The Return to “Star Quality” on Revenue per Show
Log Difference
Effect of 1 SD Change in Star Quality on Log Revenue per
Show for All Artists
0.8
0.75
0.7
0.65
0.6
0.55
0.5
0.45
0.4
0.35
0.3
0.698
0.714
1992-96
1997-03
0.618
0.482
1981-86
1987-91
Note: Based on multiple regressions of log annual revenue on millimeters of print,
year dummies and no. of support acts. Sample consists of 35,835 artist/year observations.
See Table 1, col. 3.
The Return to “Star Quality” on Revenue per Show
Effect of 1 SD Change in Star Quality on Log Revenue per
Show for Encyclopedia Bands
0.6
Log Difference
0.55
0.5
0.532
0.528
0.492
0.440
0.45
0.4
0.35
0.3
1981-86
1987-91
1992-96
1997-03
Note: Based on multiple regressions of log annual revenue on millimeters of print,
year dummies and covariates. Sample consists of 10,043 artist/year observations. \
See Table 3, col. 6.
$55.00
Average Price for Selected Characteristics, All Else Equal
$55.00
Age of Band
Gender
$50.00
$50.00
$47.69
$45.56
$44.03
$45.00
$41.85
$45.00
$42.79
$42.56
$40.00
$40.00
$35.00
$38.50
$35.00
$30.00
$30.00
5
10
20
30
Male
Female
Mixed
$55.00
Genre
$50.01
$50.00
$47.86
$44.09
$45.00
$41.60
$41.48
$40.62
$40.00
$37.98
$38.02
$36.10
$35.13
$35.00
$30.00
Blues
Country &
Western
Folk
Jazz
Other
Pop
Rock
Rhythm &
Blues
Reggae
Rap
Note: Based on a multiple regression of log price on millimeters of print, age of band, gender of band, genre of music, foreign vs. U.S. group,
and year dummies. Sample consists of 79,375 concerts performed by 1,253 artists. Weighted average price indexed to 2001 average price.
Tina Turner: What’s Age Got to Do With It?
As Artists Age, the High-Low Ticket Price Ratio Rises
Ratio of High to Low Price
2.5
2
1.5
1
1982
1986
1991
1996
2000
Baumol and Bowen’s Disease
• Takes same amount of time
and input to play Free Bird
• Concerts are a low
productivity growth sector
(modular technological
change)
• Would expect prices in low
productivity growth sectors
to grow relatively quickly
The Demand for Leisure has Risen with Wealth
• As society becomes wealthier
people demand more leisure
and higher quality leisure
activities
• Demand for leisure is a
“super normal good” – the
share of income devoted to
leisure rises with income
• Price of most leisure
activities is growing
relatively fast
• The demand for leisure is
likely to continue to grow
Leisure Hours Per Day
8
6
4
2
1850
1900
1950
Source: Robert Fogel (1999).
2000
2050
C o ncert T icket s versus M o vie, T heat er, and Sp o rt s T icket s
C o ncert V enue Price Ind ex versus C PI f o r M o vie, T heat er and Sp o rt s Event s
0.600
Proportionate Growth in Price
0.546
0.500
0.427
0.400
0.358
0.332
Concerts
0.278
0.300
0.252
0.241
0.207
Movies, Sports
& Theater
0.200
0.1 00
0.000
1 981 -86
1 986-91
1 991 -96
P e r i od
1 996-01
© Alan B. Krueger, 2002.
What Explains Recent Price Growth?
• Production Costs
Increased
• Consolidation
• Decline in
Complementary
Revenue Source:
Record Sales
• Undervalued
Asset
Industry Consolidation
• Vertical Concentration
- Venues
- Radio
- Marketing, etc.
• Horizontal
Concentration
- SFX, Clear Channel
Clear
Channel
Telecommunications Act of 1996
• Signed Feb. 8, 1996
• Prior to 1996 Act, radio
stations could own just
40 stations nationally,
and 2 in a market
• Cap eliminated
nationwide, and
raised to 8 in a market
• Since 1996, 10,000
radio station transactions
worth $100 billion
• Further legislation could
lead to consolidation
with TV and newspapers
The Industry Has Become More Concentrated Recently
Percent of Total Revenue Handled by Biggest Four Promoters – All Artists
Percent of Ticket Sales
80
60
40
20
1981
1986
1991
1996
year
2001
2003
Nationally, the Industry Has Become More Concentrated Recently
Percent of Total Revenue Handled by Biggest Four Promoters - Top Artists
Percent of Ticket Sales
80
60
41%
CC
40
20
1981
1986
1991
1996
2001 2003
Source: Calculated by Alan Krueger based on Pollstar data. Only concerts performed in the
U.S. are included in the analysis. Sample consists of artists listed in Rolling Stone Encyclopedia.
Figure 4a: Number of Shows Each Year
Rolling Stone Encyclopedia Artists
8000
Number of Shows
7000
6000
5000
4000
3000
2000
1000
0
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992 1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
Figure 5: Proportion of Seats That Are Filled for Concerts held by
Artists Listed in Rolling Stone Encyclopedia of Rock & Roll
0.95
Proportion of Seats Filled
0.90
0.85
0.80
0.75
0.70
0.65
0.60
0.55
0.50
1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Average Within-Market Percent of Revenue
Handled by Biggest Four Promoters
Average of Percent in Each of the Top 24 Markets
Percent of Ticket Sales
90.5%
80
60
40
© Alan B. Krueger, 2002.
20
1981
1986
1991
1996
2001
Source: Calculated by Alan Krueger based on Pollstar data. Only concerts performed in the
U.S. are included in the analysis. Sample consists of artists listed in Rolling Stone Encyclopedia.
Change in Prices vs. Change in Big-Four Concentration
Ratio, 1993-94 to 2000-2001; 98 Largest Cities
Proportionate Change in Price
2
r = 0.04
1.5
1
.5
0
-.5
-50
0
50
Change in Big-Four Concentration Ratio
100
Clear Channel’s Share of Concert Revenue versus their
Share of Radio Listeners across 98 Largest Radio Markets
Share of Concert Revenue, 2000-01
1
r = 0.01
.75
.5
.25
0
0
.1
.2
.3
Share of FM Radio Market, 2002
.4
.5
Herfindahl-Hirschman Index for Venues, 1986-2001
Average Across 24 Largest Cities
6000
5000
4000
3000
2000
1000
1986
1991
1996
2001
Note: Venues that are exclusively used by one promoter in a year in a particular city
are pooled together into one conglomerate. An industry with an HHI above 1,8000
is considered highly concentrated according to the Justice Department Merger Guidelines.
Surge in Average Price Per Concert Ticket in Canada is Similar to
that in the United States – 67% Nominal Growth from 1996 to 2001
Price (US Dollars)
$50
$40
Avg.
Price
$30
$20
Grow at
U.S. CPI
$10
$0
1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Alternative Model - Complementary Goods
• Dependent Demands
with Shift in Record
Market
• Records and Concerts
are complementary
goods
• Because of new
technology, the
complementarity is
weaker
1.2
Total Albums and Singles Shipped
Billions of Units
1
0.8
0.6
0.4
0.2
0
1990
1992
1994
1996
1998
2000
Source: New York Times, Feb. 25, 2002, p. C1.
Music shipments were down an estimated
9.6 percent last year, after declining 7
percent in 2000. Sales were flat 1994 to
2000.
Bands Produce 2 Complementary Goods with Market Power
Good 1: Concert Tickets
Good 2: Record Sales
max p1D1 (p )+ p2 D2 (p )- C1 (D1 (p ))- C2 (D2 (p ))


p1 - C1'
1 (p2 - C2' )D2e12
=
e11
p1
p1D1e11


“Music itself is going to become like running water or
electricity. So it’s like, just take advantage of these last
few years because none of this is ever going to happen
again. You’d better be prepared for doing a lot of touring
because that’s really the only unique situation that’s
going to be left. It’s terribly exciting. But on the other
hand it doesn’t matter if you think it’s exciting or not; it’s
what’s going to happen.”
David Bowie
The New York Times
June 9, 2002
p1 - C1'
1 (p2 - C2' )D2e12
=
e11
p1
p1D1e11
Monopolistic Price Setting
Concerts Only
Marginal
Cost
P
Concert
Price
Demand for concerts
Marginal Revenue
Q
Concerts
Monopolistic Price Setting with
Complementary Product: Records
Concert
Price
Marginal
Cost
P
P’
Demand for concerts
Marginal Revenue
Q Q’
Concerts
Revenue from Complementary
Product Falls Because of MP3, etc.
Concert
Price
Marginal
Cost
P
P
Demand for concerts
Marginal Revenue
Q Q’
Concerts
Price Growth by Genre,1996-2001
74.1%
80%
70%
55.6%
60%
50%
45.0%
47.7%
Reggae &
Other
Folk &
Country
40%
30%
23.4%
20%
10%
0%
Jazz &
Blues
Rap & R&B Pop & Rock
There’s A Long Way to Go to Catch the Super Bowl!
450
400
350
Price
300
250
200
150
Superbowl
100
Concerts
50
0
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
Conclusions
• Rising superstar effects, but
not accelerating
• To understand the market
must understand industrial
organization and technology
• Legal changes that allowed
Clear Channel to dominate
industry may be overrated
• Antitrust action in future?
Revised Telecom Act?
• Complementarities between
concerts and album sales key
to market for Rock Stars?