An Open Letter to Kanye West about Market Failure

Dear Kanye West,

I recently noticed that you released a new album called Donda and, as your tour advisor, I am ecstatic for your upcoming tour in 2022. In terms of pricing your tickets, I have some advice. I know you and Taylor Swift have a rocky history, but I hope you can overcome that to see some of the strategies she used to maximize her total revenue and minimize the number of resellers for her Reputation tour in 2018. She received a lot of criticism at first for increasing the price of her tickets, but in the end, it was the right decision. Like Taylor, you want to achieve proper pricing and not create market failure with the negative externality of abuse of the ticket system by scalpers. By doing this, you will prevent the consequences of loss of profits for you and a loss of concerts for fans.

If you avoid market failure, it will help you generate more revenue. All you have to do is increase the price of tickets. Similar to Taylor, your fans have an inelastic demand for tickets. Inelastic demand means that, to a certain point, it doesn’t matter how much you raise the price of tickets; your fans are extremely dedicated to you and are willing to pay higher prices for the same quantity of tickets. In previous concerts, you’ve priced tickets at low prices and tickets sell out immediately. After this, ticket resellers sell your tickets for large amounts of money, even up to $1,000 each. Ye, by pricing your tickets lower, you are creating market failure. The negative externality of this decision is the abuse of the ticket resale system by scalpers, and the cost that is not accounted for is the loss of the potential profit you deserve (I guess?). I noticed that you are hosting a concert with Drake later this year with tickets costing $100 and up. This is a step in the right direction and utilizes a similar strategy to Taylor. In Taylor’s case, the tickets sold out eventually but did so slowly. It seems that the same thing is happening with this concert. After this concert, if the tickets sell out, then I advise raising the price of tickets for your upcoming tour. If they sell out, this shows that you can move your supply curve and fans’ demand for tickets will stay the same. Therefore, your equilibrium price for tickets will be higher. By raising the price and avoiding market failure, you will be making a larger total revenue.

If you prevent market failure, it will help your true fans secure tickets. Most ticket resellers choose not to purchase higher-priced tickets because they think they will make less money from the tickets. There will be only a small amount of past precedent for these increased tour prices, and similar to Taylor’s resellers, your resellers will not be willing to risk such a large amount of money for an unknown or small predicted margin. Because of this, more fans will have the opportunity to purchase tickets from you themselves. This strategy lets true fans get seats instead of having scalpers and resellers get them. Mr. West, if you choose to keep your ticket prices low and accept market failure, 30-50% of your tickets will likely be put up for resale. Initially, all fans want lower ticket prices, but with the influx of reseller bots, many fans will end up with no tickets at all. By raising the price and preventing market failure, you will be providing more fans with tickets.

I hope you choose to implement this strategy, as it will help you and your fans. With this increase in price and subsequent discouragement of resellers, you are maximizing your total revenue and profit. Keeping the price so low is counterintuitive when it would benefit both you and your fans. Your ticket market is exhibiting market failure when you keep the prices low because you want to gain the most total revenue, but you aren’t pricing the tickets correctly. To avoid this, I encourage you to implement this strategy for your upcoming tour while keeping Taylor’s example in mind.


Sincerely,

Abby Nibauer










Works Cited

Davidson, Adam. "How Much Is Michael Bolton Worth to You?" The New York Times, 4 June 2013, www.nytimes.com/2013/06/09/magazine/the-secret-science-of-scalping-tickets.html. Accessed 21 Jan. 2022.

Grady, Constance. "How the Taylor Swift-Kanye West VMAs Scandal Became a Perfect American Morality Tale." Vox, 26 Aug. 2019, www.vox.com/culture/2019/8/26/20828559/taylor-swift-kanye-west-2009-mtv-vmas-explained. Accessed 21 Jan. 2022.

Hayes, Adam. "Risk/Reward Ratio Definition." Edited by Gordon Scott. Investopedia, Dotdash, 28 Dec. 2020, www.investopedia.com/terms/r/riskrewardratio.asp. Accessed 21 Jan. 2022.

Ingham, Tim. "Taylor Swift's Concerts Have Grossed More than Half a Billion Dollars in the Past Three Years – But Not without Risk." Rolling Stone, 14 Dec. 2018, www.rollingstone.com/music/music-features/taylor-swift-concerts- billions-grammys-768415/. Accessed 21 Jan. 2022.

L'Oréal. "Fans in Disbelief of the Ticket Prices for Drake and Kanye West's 'Free Larry Hoover' Concert." Hot97, InterTech Media, 14 Nov. 2021, www.hot97.com/hip-hop-news/hot-news/fans-in-disbelief-of-the-ticket-prices-for- drake-kanye-wests-free-larry-hoover-concert/. Accessed 21 Jan. 2022.