Auctions would allow pricing according to demand — and make it easier to get BTS tickets
Korean pop sensations BTS are coming to London in October, which means the Undercover Economist spent a morning recently trying in vain to secure tickets from a variety of websites that were claiming to sell them. Greymarket tickets of unknown provenance are now available at high prices.
The struggle for BTS tickets is hardly unique. The World Cup is coming up, and then there’s Wimbledon, and don’t even get me started on Hamilton.
Economists have had a solution to such frustrations for so long that it is becoming our cliché. The problem is that a limited supply of BTS tickets is priced too cheaply relative to demand. Auctioning off the tickets to the highest bidders would fix that problem, and all but eliminate touts and scalpers: if true BTS fans have already submitted their highest bids in the auction, there is little profit left for resellers.
Some people find auctions distasteful, and BTS may not want to be tainted by that. But the auction design problem itself is more intriguing than it might appear. What seems at first to be a single commodity — concert tickets — is actually a cluster of related products. Standing, seated, on Wednesday, on Thursday, far back, close up, two tickets for the diehard fans or five for the whole family — different combinations of these products might have appealed, depending on their absolute prices and their prices relative to each other.
Elizabeth Baldwin and Paul Klemperer, economists at the University of Oxford, have designed auction software that can easily accommodate such complexity. I could have submitted a bid for tickets along the lines of: “Five tickets at up to £50, or two tickets at up to £100, an extra £5 if it’s Thursday rather than Wednesday and up to £20 a head more for the VIP package.”
Looking at hundreds of thousands of such bids, aggregated by a computer, BTS could sell tickets to the keenest bidders, but could also adjust the mix on offer by installing some seats in an area previously reserved for standing or arranging an extra tour date.
A more important (and likely) use of such a “product mix” auction would be a treasury raising money from the bond markets. How much money might be borrowed and at what maturities would depend on the demand. It is more efficient to combine several separate bond auctions into a single process.
The Bank of England has used “product mix auctions” to inject liquidity into the banking system. They could be used in most situations where a range of similar goods might be bought or sold in different mixes, depending on relative prices.
I have a soft spot for auctions, but even I hesitate at the radicalism of some economists — such as Eric Posner and Glen Weyl, authors of a new book, Radical Markets. One of several eyecatching ideas in the book is that everyone’s big possessions should be up for auction all the time. I would put a price on my car. It would go into a searchable public register, and if you thought the price was attractive, you could buy it. Having named the price, I would have no right to refuse.
If my car had a sentimental value, I could put a higher price on it to ensure I kept it. But I would hesitate to name a crazy price such as £5m, because under Posner and Weyl’s system, my taxes would be determined by the self-declared value of my assets.
This system has enormous potential — simple, fair, progressive taxes and a more dynamic economy. It would be much easier to develop new infrastructure, build new homes, buy your neighbour’s garden, and pour concrete all over twee villages to build monorails or airport runways.
I once tried to buy a scrap of underused backyard in Hackney. The owner agreed on price, then on reflection, tripled it, and the deal fell through.
Under Posner and Weyl’s system, such questions would not arise: mutually beneficial trades would not be derailed. And compulsory purchase would no longer be a piece of contested bureaucratic coercion: home owners would name their price and the developers of Heathrow Airport, the Hyperloop or the latest stunt skyscraper would decide whether or not to pay it.
But the idea of posting a public selling price for all my property makes even an auction fan such as me a little squeamish.
It is not necessary to go so far to ensure a more dynamic economy. Before we consider an auction for villages, kidneys, immigration visas or my garden shed, I hope that we will at least get around to finally auctioning off tickets to see BTS.
HOW MUCH MONEY MIGHT BE BORROWED, AND AT WHAT MATURITIES, WOULD DEPEND ON THE DEMAND