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EconTalk Extra
by Amy Willis
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Mitch Weiss on the Business of... Tina Rosenberg on the Kidney M...

It turns out the odds in Vegas may beat those on Broadway, but this week's guest (and host!) find Broadway much more magical. Roberts takes a fascinating peek behind the stage door this week with Broadway manager Mitch Weiss.

Join us on this theatrical journey, and share your thoughts on the prompts below in the Comments section. We love engaging with you, and watching you engage with one another. Let's continue the conversation!

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1. Toward the end of this week's episode, Weiss talked about premium seating--some of the best seats at the hottest shows are prices many times higher than other nearby seats. Here is Weiss's reaction:

The great thing--as I said, for me, working in the theater--I don't have to worry about whether or not it's going to survive. It's--first of all, it's blooming. I've never seen it like this. We are making a fortune. Of course, those premium priced seats, which I am one of the few people on Broadway totally against--I just see it as greed. But people are willing to buy it; and that's our marketplace.

Roberts did not follow-up on this point. If he had, what might have been his response? How would he deal with the concern that the poorest citizens may be priced out of seeing a Broadway show?

2. As a business, how is Broadway like the movie business, according to Weiss? Why do you think no Broadway producer has yet opened the same show simultaneously on Broadway?

3. A lot of Roberts's and Weiss's conversation concerns the complex structure of union rules and requirements that govern the production of a Broadway show. Does Broadway success in spite of or because of this kind of complexity? How do you think Roberts and Weiss might each answer this question?

4. What is your favorite Broadway show that you have seen in person? Have the memories of that show persisted in a similar way to your favorite movie? Roberts and Weiss both seem to feel some special magic about Broadway. Do you agree?

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COMMENTS (9 to date)
Doug Anderson writes:

1. I think Russ did follow up on this, pointing out that that the premium prices at successful shows helped less successful ones stay around longer. Mitch responded that wasn't so because premium tickets were not sold for less successful shows. The followup response that was not made was that by increasing the revenues of successful shows, the possibility of premium prices increases the expected value of shows ex ante and therefore leads to more shows being produced (even less successful ones) as producers are more willing to take a shot at the brass ring of a successful show.

2. It is hard to scale a show in the same way as a movie, where marginal costs of another theater are minimal. Also, so few shows succeed (and nobody knows in advance what will be successful), it is hard to justify using multiple theaters before you know if a show will be successful.

3. You don't know. Perhaps Union rules really only reduce transaction costs (Weiss), but if so that would be a pretty happy coincidence in that they also reduce a lot of flexibility and are the result of legal regime that artificially favors unions (Roberts).

4. Wicked. Saw in London for the first time on a whim not knowing anything about the show and was fascinated (despite being jet lagged). Memories are helped by the easily availability of recordings of the music.

Jeff Boyd writes:

The great thing about premium seats are that they cover the substantial fixed costs associated with putting on a show. By allowing rich folks to buy those tickets the show can go on and us poor folks can have the opportunity to see a show at a price below the average cost of production (cost of show divided by seats sold).

Thank you rich people!

Book of Mormon is my favorite show. Almost chewed out Renee Zellweiger for cutting in line (she wasn't really) enjoyed the show and then best of all the next day I got to watch the making of Keyne's v Hayek Round 2!!!

Steve Fomer writes:

1. Russ would say that the premium seats allow the investors to make more money, create more shows and donate to the poor. The new shows increase the total supply of shows therefore reducing the marginal ticket price.

Chris O'Leary writes:

The price paid by theatre-goers would still be (generally) high regardless of face value of the tickets. If the price is low but the perceived value/demand is high, a resale market will emerge (scalpers, etc).

If this does anything for the poor, it will be by enabling them to buy tickets (via lottery, line tickets or whatever means is used to ensure tickets go to "regular" people) and then re-sell them. This also works for the poor because waiting in a long line to buy tickets to resell them makes economic sense.

But the venues know this will happen if they benevolently keep prices low, and they would rather capture the value above the ticket price rather than the scalpers.

I'm one of those $20 payers sitting next to $200 payers. Difference is I had to bear some risk by buying at last minute. I often miss the first inning and sometimes can't go to the game at all if prices don't drop at the last minute like they usually do..

I buy 50-60 baseball tickets /year from scalpers/StubHub. Mostly Stubhub, not. I know market well. Stubhub prices usually drop 15-5 minutes before the game, when people try to get something for their tickets or do others a favor and basically give tickets away (which does happen, but rarely).

Jeremy writes:

Monopolistic price discrimination, using seat location as the discriminator . It allows the monopolist to increase its overall revenue from ticket sales while ensuring that each consumer still retains sufficient consumer surplus to motivate their purchase . In other words consumers happy to sit in inferior seats get ticket cheaper. It's pretty similar in theory to the city bus company charging students half the adult price, except that it avoids scalping cheap tickets to richer consumers, because rich consumers actually want to pay more to get the better seat . The expensive seat could only be 5% better (from most people's perspective) but they could probably charge 50% more due to the different demand schedules of different consumer types.
This explains why only the most successful shows are able to use this multi-price approach because those successful shows have some of the characteristics of a monopolist . That is if a person has made up their mind they want to see that particular show then they will be reluctant to substitute another show even if substantially cheaper.
I have never once found a businessperson having a clear view of the economics of their own sector. So I find that remarks like 'premium pricing is greed' are very common judgements. It's as if economics steals from people's sense of agency in their success? Of course that kind of moral position - even if widely held - doesn't stop the thing from occurring... It also shows that an understanding of the economics of your business doesn't always contribute to being successful in your business; it is however completely crucial for regulator to understand and respect the markets [This is where Russ's favourite quote from Hayek could go ]

Michael Byrnes writes:

More than anything, I am just surpised that there is any controversy at all over premium seating. It's another "victimless crime", and from the customer's point of view the premium seating model already does exist - via scalpers.

George writes:

The "premium seating" issue strikes me as similar to the other "price-gouging" issues that have been raised here. If the market price is "premium" for certain seats, then the producers should charge this price. This higher return will -- at the margin -- encourage other producers to take risks for higher potential rewards and can increase both the quantity and quality of future theatrical offerings. If the premium price in not allowed to be charged in a straightforward way (think rent control or other price caps), all that will happen is that customers will have to "pay" the price in other ways: waiting in long lines and paying with their time; paying scalpers higher prices for choice tickets; etc. The trouble with these other ways of paying the premium price is that the money doesn't go to the producers so doesn't provide the same incentive for more/better shows.

steve writes:

3. From what Weiss said, it sounds like the union rules are a codification of something akin to what some might call "the best practice." Not necessarily the absolute best practice, but one that is reasonably effective. Having many mediocre managers in my career in bank that has relatively high turn-over in the lower ranks (think tellers) and in the upper ranks (branch managers move up the chain from small branches to bigger branches regularly), getting to a point where the practice/procedures is "good enough" is a huge challenge. We have people moving/leaving/whatever so frequently that sometimes it seems that we can't establish a good rhythm (pun intended... "I got rhythm, I got music, I got my man...Who could ask for anything more?" - Gershwin). But, because this bank has been around for decades, we can rely on a set of policies/procedures that are good enough to run a branch, but not the absolute best because each branch/location has their own quirks... but good enough.

I've also been in a start up where we had to make up all our rules on the fly. We didn't have a practice to codify into a set of policies/procedures. And we made many huge mistakes with our procedures ... which ultimately led to the demise of the business.

By codifying the rules as Weiss describes, it appears that the union rules provide this kind of "good enough" rule set. That means that all of the start up productions don't need to create their own set of rules. They can rely on the knowledge base that is contained in the union rules. I would think that the majority of Broadway productions, with their high failure rate, simply don't have the longevity to develop their own knowledge base.

Also, it would seem to me that the unions have an incentive to create a decent rule set. If their rules were heavily biased in their direction, then it would lead to a higher rate of failure... and fewer jobs. Or differently stated: fewer long-term jobs. Again, I'm saying that the rules are reasonably effective but not necessarily the absolute best.

4. Les Miserables and the Music Man. And more recently Lion King. The songs are stuck in my head forever.


G Johnson writes:

Great interview about Broadway! When Mitch talks about the doorman making minimal wages for working 54 hours being 35 years old and sharing an apartment with three other people wouldn't that have been a great time to dive deeper into the negative consequences of unions? Russ you seemed the more focused on the free-market aspect of kidney donors then Playbill stuffing? I thought that curious. Still great show.

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