Fairness constraints on profit-seeking : Evidence from the German club concert industry
Unlike Kahneman et al.’s (1986) iconic snow shovel, live music is a performance good that fans attach a particular value to. Hence, an artist’s pricing decision might differ from standard rent seeking behavior. In this paper I propose a model that incorporates fairness concerns into the pricing decision for concert tickets. The hypotheses derived from this model are tested on data from the German club concert industry. The results are consistent with the model: Although (i) price dispersion is the dominant pricing strategy in the club concert industry and artists prefer to perform on a Friday or Saturday night, (ii) artists do not set higher prices on the weekend. These results are consistent with fairness constraints, but are difficult to explain within a standard profit maximization framework. As a third result, (iii) the data reveals that ticket prices are positively correlated with a city’s number of inhabitants.
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