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Author: Kimberlee Josephson

Reputation Works Better Than Regulation: Why Demand Should Determine Prices

Dynamic pricing is receiving a lot of attention, given the media storm surrounding the recent sale of Taylor Swift’s concert tickets. Problems with pre-sale pricing and ticket availability for Swift’s “Eras” tour frustrated fans and prompted politicians to cry foul concerning Ticketmaster’s sales strategy. 

Alexandria Ocasio-Cortez was among the the first to assert that Ticketmaster’s supposed monopoly status should be “reigned in,” while other members of Congress such as Amy KlobucharIlhan Omar, Richard BlumenthalDavid Cicilline, and Bill Pascrell also felt it necessary to denounce the dominant status of Ticketmaster. 

This isn’t the first concert that had fans fans demonizing Ticketmaster for its dynamic pricing policy, and this isn’t the first time government officials vowed to intervene in the live entertainment sector. In light of recent events, let’s clarify what dynamic pricing is, why it is a worthwhile strategy for firms to pursue. Politicians should refrain from playing referee, particularly since a firm’s reputation, rather than regulation, plays a greater role in remedying consumer concerns. In fact, in under a month’s time, Ticketmaster has not only apologized to fans for the debacle but has already started the process of making amends by announcing that Verified Fans will have a second chance to purchase tickets for the coveted concert. That response rate is unheard of in the halls of Congress.

Why Demand Levels Should Determine Prices

Dynamic pricing has been around in some form or other for centuries. It is a pricing policy that allows for variations rather than one that is fixed. During the 1950s, however, price adjustments were beginning to be harnessed as a strategic matter in relation to demand conditions. Nobel Laureate William Vikrey proposed that prices should increase for public transport systems at peak periods to lessen congestion. His discovery that a change in price could influence use and consumption patterns by either stimulating or suppressing demand appealed to the interests of the private sector. 

Under a dynamic pricing policy, prices shift according to market conditions, consumer interest, and competitive pressures. Thanks to technological advancements that can assess changes in these factors, companies can better determine demand levels, and pivot their prices, in near-real time.

With dynamic pricing, last-minute tickets to a show can either be a steal if there are unsold seats, or can cost a small fortune if those seats remain in high demand. A Tik Tok influencer demonstrated this by spending $10,000 on two tickets to a Harry Styles concert. 

Dynamic pricing happens all around us, and anyone who has rushed to a restaurant to take advantage of happy hour deals knows all too well how crucial it is that their server input the order before the hour is up. Those who prefer to dine late must forgo the happy-hour price perks. This illustrates an important benefit of dynamic pricing: it furthers opportunities for price discrimination. Despite the negative connotation, price discrimination can be a strategic move. Different markets are charged different prices for the same offering, as in the classic example of granting student or senior discounts for movie tickets when other ticket buyers (seeing the same film in the same theater at the same time) pay full-price. 

Why Both Companies and Customers Leverage Dynamic Pricing

Another important aspect of a flexible pricing approach is that it can create opportunities for cross-subsidization within a firm. Charging a higher price to a market who is willing and able to pay for it allows a firm to offer the product at a lower price to a market with limited purchasing power. Price differentials and price adjustments should be harnessed in a dynamic and interconnected marketplace, and indeed it is common practice.

Price adjustments occur not only across the globe, but also across the street. Retailers like Target will adjust their in-store and online prices in relation to local economic factors, and its savviest shoppers know to adjust their preferred store zip codes and clear their caches to take advantage of price match policies when they are in their favor. Just as technology has enabled firms to track trends and pivot prices, it has also enabled consumers to compare prices in real time, submit requests for returns, and vocalize concerns.

Prices can rise or fall under a dynamic pricing policy, and such an approach works best if the perception of consumer surplus is kept intact, meaning consumers believe they are receiving something of greater value as compared to the price. 

Why The Consumer Remains King In A Free Market

When done well, dynamic pricing adapts to consumers; when done poorly it is seen as taking advantage of them. Yet, it is important to bear in mind that the consumer is never truly captive. If a price is too high, because demand is too great or supply is too scarce, consumers are not forced to buy. For this reason, businesses should take care regarding consumer interests, and charge what they can when they can. 

Ticketmaster has the right to charge what it wants, as it has assumed the rights to the seats at the venue where Taylor Swift performs. And Swifties have the right to refuse purchasing those seats if the show is not worth it to them. Moreover, Taylor Swift has the right to establish her own ticket distribution system if she is unhappy with Ticketmaster’s functionality as an intermediary between her shows and her fanbase.

Over 14 million users flocked to Ticketmaster’s website to make a purchase during the pre-sale release and, according to Ticketmaster, to meet that level of demand “Taylor would need to perform over 900 stadium shows (almost 20x the number of shows she is doing)…that’s a stadium show every single night for the next 2.5 years.” 

It seems it is not Ticketmaster pushing up prices, but rather fans’ demand. 

As consumers, we must remember that in a market-based system, consumers determine what is of value, what is demanded, and what is consumed. To maintain such authority, we would be wise to use our wallets, rather than Washington cronies, to curtail costs.

Originally published here

Why Political Interference in Big Tech Continues To Be a Big Mistake

little common sense and a little historical context make it relatively easy to see that monopoly power concerns for Big Tech are blown out of proportion, since internet incumbents don’t last forever and even the greatest industry leaders can be beaten at their own game. Take for instance AOL’s AIM, which despite having immense market powercouldn’t maintain its dominant position indefinitely – and the same is true for others within the tech sector.

Gen Xers remember when Facebook replaced Friendster and Myspace, just as younger audiences have now replaced Facebook with TikTok and Snapchat. And while TikTok is garnering quite a bit of media attention, Twitch and Discord are poised to be next as preferred platforms

Based on these examples, the pitching of proposals in Congress regarding who can or cannot tweet seems counterintuitive, especially since Twitter ranks rather low in usersanyway. 

Yael Ossowski, deputy director of the Consumer Choice Center, notes that “If Congress succeeds in changing antitrust laws to curb tech power, it will not be to the benefit of the typical user and consumer online. Rather, it would fulfill the political goals of a coalition that seeks to curtail much more than mergers and acquisitions: certain political speech, movements they view as hostile, and products to which they would rather consumers not have access.” Indeed, having the government determine who can post or what can be posted is a more concerning matter than that of a private organization.

Given that government oversight tends to grow overtime, and that regulations rarely get repealed once in place, competition serves a better means than government interference for curtailing Big Tech’s bad behavior. Even the best of the best in the business realm go by the wayside in due time, which is why calls for antitrust action against Big Tech should be squashed and claims for content moderation should also be put to rest – despite the detestable deleting of accounts and posts based on political grounds.

The market should be allowed to do what it does best – as conveyed by Joseph Schumpeter and those who advocate for his stance – incentivize competition via consumer interests and promote creative destruction through innovative processes. 

Government interference will only generate greater forms of technocracy, resulting in any entrepreneur in this realm to spend a greater amount of time and money navigating legal matters rather than on learning how to serve users best. And the amount of big bucks Big Tech is currently spending on lobbying fees could certainly be put toward better and more productive use.

Although politicians herald antitrust as being a means for mitigating the abuse of market power, the opposite is true. Antitrust results in nanny state stipulations that inhibit competition from new entrants and increases opportunities for regulatory capture – which, given Congress’s limited understanding of the tech space, is highly likely as the best of the best in the industry will be called upon to advise and consult on the rules being made.  

The aftereffects of antitrust have always been anti-producer, anti-consumer, and anti-progress. Ayn Rand rightly asserted that, “The Antitrust laws—an unenforceable, uncompliable, unjudicable mess of contradictions—have for decades kept American businessmen under a silent, growing reign of terror.” And according to a study for the Competitive Enterprise Institute, “Aggressive antitrust enforcement can create considerable economic uncertainty, which can have a chilling effect on long-term investment and innovation in both products and in business practices that benefit consumers.” 

It is important to remember that a monopoly in its truest sense is not occurring whenever the potential for an alternative to come about is present. And while some cry foul to how some in Big Tech are calling the shots on posting privileges, or how the creation of competing platforms has been hampered by restrictions of certain hosting sites, such asAmazon blocking Parler, the social media landscape is shifting. New entrants and options may not have come about as quickly as we’d like, but alternatives are gaining ground.

It should also be noted that even when there are limited options in a market economy, this does not always mean something is wrong, in fact it can actually mean that something is right. Consumers are creatures of habit, and so if value is being provided for and people are satisfied, other options may simply not be necessary nor desired. And for most of social media’s history, this was the case. Being able to interact online at no cost has been, and continues to be, a great benefit to many. 

Limited choice can also occur when consumers consist of a small or captive market – Milton Friedman noted how it would be inefficient to have more than one telephone poll producer in each town. Fortunately, unlike Friedman’s example, the World Wide Web is a limitless townsquare and so is our potential for contacts and queries – therefore one platform will never be enough. In fact, according to the Global Web Index, Gen Z and Millennials have, on average, 8.4 social media accounts and are known to gravitate toward other sites whenever something better comes along. 

Currently, image-based platforms are proving to be favored by younger audiences, while decentralized P2P platforms are also making waves. Online usage rates, and online offerings, will adjust to interests at hand, and given that network effects are diminishing through the consolidation of accounts, converting followers from one platform to another is getting easier. Perhaps no one knows this better than Mark Zuckerberg. As it turns out, after Meta acquired Instagram and WhatsApp, one of Facebook’s biggest concerns is competition coming from within. And when all three of these platforms became unavailable for roughly six hours, in October of  2021 due to a network outage, online audiences utilized other sites or simply logged off – proving people can pivot and adjust as needed.

Rest assured that Big Tech is more vulnerable than many realize, and competition isproving to be plentiful. The government’s meddling in social media matters is not only a waste of time and resources for both the public and private spheres, but also a big mistake for promoting the progress of user services and options.

Originally published here

Every Industry Should be Concerned about the News Cartels Meant to Bully Big Tech

The Journalism Competition and Preservation Act (JCPA) was introduced in 2021 as a means of protecting local media outlets from becoming obsolete due to the competitive landscape shifting to the online realm. The JCPA claims that the playing field needs to be leveled for news outlets in need of viewers and compensation must be allotted for the content sharing occurring on digital platforms.

This bill, receiving serious consideration from the Senate, would grant broadcasters the ability to collectively collude on matters of revenue generation, sharing privileges, and link click-through access. Essentially, the JCPA will exempt select parties within the news industry from price fixing policies and antitrust penalties – all for the sake of socking it to Big Tech.

The passing of this legislation should be a primary concern for any business professional since it will not only create new forms of industry interference but also set a new precedent regarding antitrust application. And here is why: 

  • The JCPA is targeted since it only focuses on one sector with one bullseye – Big Tech. Historically antitrust policy has had a broad application, but if the JCPA passes, it opens the door for other firms to be specifically called out in the future on similar grounds.
  • The JCPA is preferential in that although antitrust cases are being brought forth against digital platforms, bands of broadcasters will be granted safe harbor from cases being brought against them. They would be absolved from adhering to existing antitrust laws.
  • The JCPA is ex post facto in that changes and charges are to be applied regarding content sharing and link clicking, which were previously free and freely accessible.

The basic premise is that it will “provide a temporary safe harbor for publishers of online content to collectively negotiate with dominant online platforms regarding the terms on which content may be distributed”.

So, first and foremost, we must ask what is meant by “temporary” given that nothing is ever short-lived when agencies and accolades are involved. According to the bill, news outlets with online content will not be held accountable for violations of antitrust law for a four-year term. But, even if those four years are truly locked in place, it is unlikely that any oversight committee, which will be required in this case, will easily disband when that timespan has lapsed – particularly once funding streams and authority status are established.

We must also ask why “safe harbor” should be granted to select firms. Protectionist measures via legislation are a waste of resources given that private actors have historically done a better job at curtailing or even catching bad behavior in a competitive market.

It was Sherron Watkins who exposed Enron, not the SEC, and it was Bernie Maddoff’s sons who turned him in, not federal agents. And just as Mark Zuckerberg’s Facebook unseated Tom Anderson’s Myspace as the social networking site of choice, someone else will come along and upend Meta’s dominance. That is how the market works over time. This leads to the third and final point: should “dominant online platforms” truly be a concern?

While some assert that cable TV simply can’t compete, and “newspapers are locked in a life-or-death struggle with tech giants” we must acknowledge that change is hard and you can’t stop progress. In 2010, the last full set of Encyclopaedia Britannica was printed, and it hasn’t been missed by consumers or even the company that produced them.

Microsoft’s Encarta made the purchase of printed text obsolete, and now Wikipedia makes Encarta CD-ROMs a thing of the past. And one could argue we have greater access and education at our fingertips for it. 

As conveyed by the deputy director of the Consumer Choice Center, “It is up to media firms to discover innovative and effective methods of capturing digital audiences, not lobby governments to siphon money for them.”

Platforms vary in terms of function and service, and Big Tech is not impervious to natural forms of competition given the dynamic nature of market mechanisms and consumer needs. Take, for example, Netflix, which launched in 2007 and skyrocketed to success in 2013 with the release of its first series, House of Cards – coincidentally a storyline based on power struggles and corrupt cronies in Congress. By 2016, Netflix was being touted as monopolizing the streaming service sector and for a few years, the press readily called attention to its success as something to question and even fear.

In 2013, the term FANG stocks came about to represent industry giants with a stronghold in certain lucrative sectors and who could serve as the whipping boy for Big Business on Capitol Hill.  FANG included companies that we love to use but also love to loathe: Facebook (social media), Amazon (e-commerce), Netflix (streaming entertainment), and Google (search engine). 

Although we see these companies being under great scrutiny in the halls of Congress for their supposed monopolization of power, we can see before our eyes how the market is moving despite lobbying efforts and party officials crying foul. Indeed, fast forward to today and the FANG acronym is less applicable not only given name changes (Facebook to Meta) but position changes, whereas success is now dwindling for Netflix.

Hulu, HBO Max, Disney+, Prime Video, Starz, Peacock, Paramount Plus, Apple TV Plus, and more have all emerged despite Netflix’s previous power position. And the same will be true for others in the Big Tech realm over time. Decentralized P2P platforms are increasing in users and Facebook is facing cannibalization from within.

Twitter is another great example of a Big Tech firm that bureaucrats love to bash. Presently, arguments over posting privileges are being raised by Congressional members but if to have a little patience, we can already see the market is making moves. Twitter’s power is waning in comparison to other platform providers in users and reach, and so much of the time spent debating Dorsey’s former firm could be better spent on other matters.

To be sure, Senators have a skewed view of how the market works, and even a limited understanding of where their concerns should lie in regard to the digital media realm – and yet the interest for interference is growing. 

In addition to the JCPA, the House and Senate Judiciary Committees are also aiming to further their control over the online realm through the proposed tech accountability package. This package is proposed as a means for curtailing the dominance of certain digital platforms, but in reality, it is a significant power grab – and the power they are after is truly alarming.

These proposals further embed politics in economics, whereas the government will not only serve as a referee but also determine who can or can’t play. Congress will be corralling competition for online content creation and distribution, and the JCPA will substantiate such a mandate.

While economic power is limited by the market (since purpose and profit are determined by the exchange of goods, services, investments, labor, etc.), political power is a tricky beast given the incentives present for incumbents and the power of the purse strings for those in prominent positions.

To be sure, the network effects of political dynasties in DC are a more troublesome matter than the network effects of social media and so we should be very wary of allowing the government to have a larger role in industry matters – even when it comes to Big Tech.

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