Latest / Pricing Power Podcast with Fexingo: How Businesses Set Prices, Raise Margins, and Win Customers / How Dynamic Pricing Backfired on Ticketmaster
Transcript
- Lucas: In November 2022, Ticketmaster’s platform crashed during the presale for Taylor Swift’s Eras Tour. Millions of fans waited hours, only to see prices jump from a promised $49 to over $25,000 on the secondary market before they could even check out. That single day triggered a Department of Justice investigation, a Senate hearing, and a fundamental question for any business that uses dynamic pricing: when does algorithm-driven revenue maximization become a self-inflicted wound? Luna: And it’s not just Taylor Swift. Ticketmaster has been using dynamic pricing since at least 2009, when it acquired the software firm that powered it. But the Eras Tour presale was a perfect storm of high demand, limited supply, and a platform that simply wasn’t built for that volume. Lucas: Right. The company later said it expected 1.5 million verified fans to participate in the presale, but 14 million unique users showed up, including bots. But let’s separate the infrastructure failure from the pricing strategy itself. Because dynamic pricing — sometimes called surge pricing or demand pricing — isn’t inherently predatory. Airlines use it. Hotels use it. Uber uses it. The fundamental idea is that price should reflect real-time supply and demand, not some static cost-plus calculation. Luna: And in those industries, consumers have largely accepted it. We know a flight to Orlando in February costs less than the same flight in December. But concert tickets are different. They’re emotional purchases. Fans feel a personal connection to the artist. When the algorithm pushes a ticket from $150 to $800 in seconds, it feels less like market efficiency and more like exploitation. Lucas: Exactly. And that emotional reaction is economically significant. Ticketmaster’s parent company, Live Nation, reported $22.8 billion in revenue for 2023, with operating income of about $1.5 billion. But the reputational damage from the Swift fiasco has been massive. Multiple states have introduced bills targeting dynamic pricing. The DOJ’s antitrust lawsuit, filed in May 2024, specifically cites the company’s use of exclusive long-term contracts and alleged retaliation against venues that use competing ticketers. Luna: So the question becomes: was it the dynamic pricing algorithm itself that was the problem, or the monopoly power that let them use it without competitive constraint? Lucas: That’s exactly the distinction we need to make. Let’s look at a counterexample: the airline industry. Delta, United, and American all use dynamic pricing algorithms that adjust fares hundreds of times a day. But they compete with each other, plus low-cost carriers like Southwest and Spirit. If one airline’s algorithm overprices a route, passengers defect. That competition keeps the pricing in check. Luna: But Ticketmaster controls roughly 70 percent of the primary ticketing market for major concerts and venues. For a fan who wants to see Taylor Swift, there’s no alternative platform. The algorithm knows that. So it can push prices to whatever the maximum willingness to pay is, because there’s nowhere else to go. Lucas: Right. And that maximum willingness to pay turns out to be very high. The Eras Tour sold over 4.3 million tickets, making it the highest-grossing tour ever, with $1.04 billion in revenue. But the average face-value price was only $238. The real market-clearing price was much higher — we know that because resale sites like StubHub sold tickets for an average of $2,500. So Ticketmaster’s algorithm was actually conservative compared to the secondary market. But the public outrage wasn’t about economics — it was about fairness. Luna: And fairness is a pricing constraint that algorithms don’t naturally model. Behavioral economists have shown that consumers have a strong sense of a 'fair price' — a reference point based on historical prices, production costs, or what other people paid. When the algorithm deviates too far from that reference point, it triggers anger and a desire for punishment, even if the buyer could afford it. Lucas: There’s a famous study by Daniel Kahneman and colleagues where people were asked whether a hardware store should raise the price of snow shovels after a snowstorm. Most respondents said no — they viewed it as unfair price gouging, even though basic supply and demand would justify it. Ticketmaster’s dynamic pricing collides with that same intuition. Fans see a $49 ticket become $449 and think 'that’s price gouging,' even if the algorithm is just responding to 14 million people hitting refresh at once. Luna: So what should a business with pricing power do? The smart ones build guardrails into their algorithms. They cap the maximum surge multiple. They transparently communicate the range of possible prices before the sale starts. They offer fixed-price alternatives. Lucas: And some do. Bruce Springsteen’s 2023 tour also used dynamic pricing, but his team set a hard cap on how high prices could go — around $4,000 to $5,000. That still seems high, but it’s a far cry from the unlimited surge that Ticketmaster allowed for Swift. And Springsteen faced criticism too, but it was nowhere near the same scale. The difference was expectation management and a visible ceiling. Luna: Right. And that’s a lesson that goes beyond ticketing. Any business with pricing power needs to consider not just what the market will bear, but what the market will bear without destroying trust. Because once trust is gone, it’s very hard to get back. Lucas: Before we go further, a quick note — this show is possible because listeners support it. If today’s episode was useful to you and you want to keep it ad-free, buy me a coffee dot com slash fexingo helps. Even a small contribution covers hosting costs and lets us keep diving into these topics without commercial breaks. Luna: Yeah, it really does make a difference. And we appreciate everyone who chips in. Lucas: So back to the question of trust. After the Eras Tour fiasco, Ticketmaster announced in late 2023 that it would move away from dynamic pricing for certain events, or at least offer more fixed-price options. But by then, the regulatory machinery was already in motion. Luna: The DOJ’s lawsuit, filed in May 2024, doesn’t directly target dynamic pricing. It focuses on Live Nation’s anticompetitive conduct — the exclusive contracts with venues, the threats against competitors, the acquisition of rival ticketing firms. But dynamic pricing is a symptom of that monopoly power. If there were real competition, fans could just buy tickets on a different platform that offered a better pricing model. Lucas: Exactly. The irony is that dynamic pricing, in theory, should benefit fans. If demand is lower than expected, prices fall. Fans who are willing to be flexible can get bargains. But in a monopoly context, dynamic pricing becomes a tool for extracting maximum consumer surplus — and that’s exactly what happened. Luna: Let’s talk about the secondary market for a second. Sites like StubHub and Vivid Seats also use dynamic pricing, but they’re resale platforms — they don’t set the initial price. Yet they’re often blamed for driving prices up. In reality, the secondary market is just a reflection of what the primary market should have charged. If Ticketmaster had set prices at the market-clearing level from the start, there would be very little profit for scalpers. Lucas: That’s a really important point. When a ticket has a face value of $100 but resells for $1,000, that $900 difference is economic rent that goes to the scalper, not the artist or the venue. Ticketing companies have an incentive to set prices low to generate fees, but then they lose that rent to the secondary market. Some artists, like Taylor Swift, tried to combat this by using a 'verified fan' system and limiting ticket transfers. But it’s a cat and mouse game. Luna: And that brings us back to the core question: what is the right pricing model for live events? Should artists set prices high and capture the rent themselves, or keep prices low to reward fans and risk scalping? There’s no one-size-fits-all answer. Lucas: But there are best practices. One is transparency — tell fans upfront that prices will fluctuate based on demand, and show a price range. Another is caps — limit how much the price can rise above a baseline. A third is timing — if you’re going to use dynamic pricing, start low and let prices rise, rather than starting at a high median and then surging. That way, early buyers feel like they got a deal. Luna: And that’s exactly how airlines do it. The cheapest seats are booked months in advance. Late bookers pay a premium. Everyone understands the logic, even if they don’t love it. Ticketmaster’s problem was that the logic wasn’t transparent and the surge felt arbitrary. Lucas: So what’s the long-term outlook? The DOJ lawsuit is still in court. If it succeeds, Live Nation might be forced to divest Ticketmaster, which could open the door for competitors like SeatGeek or AXS to gain market share. Those competitors might offer different pricing models — SeatGeek, for example, has experimented with 'price as you go' models that let fans commit to a maximum price and pay less if demand is lower. Luna: But even if the monopoly breaks up, dynamic pricing itself isn’t going away. The genie is out of the bottle. The key is how it’s implemented. The businesses that succeed with dynamic pricing are the ones that remember the human element — that pricing isn’t just about maximizing revenue, it’s about maintaining a relationship with the customer. Lucas: And that’s the fundamental lesson from Ticketmaster’s Eras Tour debacle. If you treat pricing as a pure optimization problem, you risk optimizing your way into a crisis. The algorithm doesn’t care about fairness. It doesn’t know that a Swiftie who saved up for months feels betrayed when the price jumps from $49 to $449. But the business should care, because that feeling of betrayal can trigger regulation, litigation, and a permanent loss of trust. Luna: Well said. And I think that’s a good place to leave it. Next time, we’ll look at a company that got dynamic pricing right — and what we can learn from their approach. Lucas: Looking forward to it. Thanks for listening.