Lecture 3 Demand for the Arts: Characteristics of the Market

Transcription

1 Lecture 3 Demand for the Arts: Characteristics of the Market Professor Julia Lowell lowell@econ.ucsb.edu Spring /9/2012 Econ 191ac -- Lecture 3 1

2 Outline: Lecture 3 Housekeeping issues Short review of Lecture 2 & go over homework Modelling the live performing arts Economics of ticket resale Elasticity of demand (begin) Homework for Wednesday 10/6 4/9/2012 Econ 191ac -- Lecture 3 2

3 Housekeeping Readings Two copies of Heilbrun & Gray should now be on library reserve, one copy of Caves Late homework policy Late homeworks not accepted If going to miss class, can always them Supplemental readings Not required, background for lectures Pass back homeworks Introduction cards 4/9/2012 Econ 191ac -- Lecture 3 3

4 Introductions About You Please provide the following information (on the paper provided): Name & preferred address Year at UCSB (junior, e.g.) transfer student? Hometown and country (if not U.S.) High school(s) Connection to the arts, if any sing or play an instrument? paint or draw? need extra memory for your i-pod music collection? Have you taken Econ 100A or B? 9/27/2010 Econ 191ac -- Lecture 1 4

5 Lecture 2 Review: Measures of Demand for the Arts Household participation surveys (SPPA, Harris, eg) Capture nonparticipants as well as participants Can capture all 3 modes of participation Are most representative of the U.S. population Audience surveys (individual orgs) Capture participants at live events only Can capture detailed information about audience preferences, motivations, barriers Are relatively inexpensive to administer Personal consumption expenditure surveys (BEA) Measure product of price and quantity Do not adequately capture demand for products and events funded by grants and donations 4/9/2012 Econ 191ac -- Lecture 3 5

6 Data Collection: Things To Think About Who is collecting the data? Government or private firm? Who is paying for the data? Who is providing the data? Individuals, households or businesses How are respondents selected? Census versus survey Random versus nonrandom sample Do the data form a snapshot or a time trend? How are questions phrased and ordered? 4/9/2012 Econ 191ac -- Lecture 3 6

7 Lecture 2 Review: Facts About U.S. Arts Participation ( ) In , 36% of adult Americans participated in at least one live cultural activity Most popular were historical sites, arts & crafts fairs, art museums & galleries Distant fourth was attending musicals Americans use media most often to listen to classical music But popular music not a category on survey Hands-on arts participants most often Buy art Do photography Sew or weave 4/9/2012 Econ 191ac -- Lecture 3 7

8 Lecture 2 Review: Trends in U.S. Arts Participation ( ) Live attendance trends not looking good for benchmark forms Ballet down 31%, opera -30%, classical music -29% Young adult attendance down everywhere except opera Average age for opera, symphony, ballet audience >45 Fewer Americans visiting historic sites, attending arts & crafts fairs Hands-on arts participation slightly down, but not significant Photography up No information on popular or electronic music, creating YouTube videos 4/9/2012 Econ 191ac -- Lecture 3 8

9 Lecture 2 Review: Three Factors Explain Most of the Variance in Participation Education Own Income Education Parents Age Race/Ethnicity Gender 4/9/2012 Econ 191ac -- Lecture 3 9

10 Lecture 2 Review: Education Explains Much Variation in US Arts Participation SOURCE: NEA SPPA 2008 Highlights Education is significantly more important than income 4/9/2012 Econ 191ac -- Lecture 3 10

11 Homework from Wednesday 4-2 Question 1: A Good Answer Explain what Stern, 2011 means by the following statement: Although they are statistically significant, the relationships of age and cohort to levels of arts participation are generally quite weak. What seems to be the best predictor of arts participation? (Megan) He is saying that, even though there is a significant correlation, it is still a pretty weak relationship. The best predictor of adult arts participation is arts education during childhood. The studies show that arts attendance and personal arts creation for the duration of life are significantly predicted by arts education throughout childhood. By exposing young people to arts education repeatedly, it will expand their participation as well. 4/4/2012 Econ 191ac -- Lecture 2 11

12 Homework from Wednesday 4-2 Question 2: A Good Answer According to Rabkin and Hedberg, 2011, childhood arts education is probably more important than adult arts education in influencing participation in the benchmark arts, even though adult ed has a stronger statistical association. Why? Would it make a difference if non-benchmark arts were included in the study? (Caitlyn) This seems true because making the arts accessible at a young age through education helps build a larger national audience. Childhood arts education provides children with opportunities to be exposed to the arts. Childhood arts education and the benchmark arts are highly correlated, indicating that, if we want to keep the benchmark arts alive, childhood arts education may be an important factor. If nonbenchmark arts were included in the study, I believe childhood arts education would still have an important role because it is still a gateway for exposure to many different forms of art. 4/4/2012 Econ 191ac -- Lecture 2 12

13 Homework from Wednesday 4-2 Question 2: Another Good Answer According to Rabkin and Hedberg, 2011, childhood arts education is probably more important than adult arts education in influencing participation in the benchmark arts, even though adult ed has a stronger statistical association. Why? Would it make a difference if non-benchmark arts were included in the study? (Silverio) Rabkin and Hedberg suggested that childhood arts education is probably more important than adult arts education in influencing participation in the benchmark arts because they observed that most adults who took an interest in arts learning opportunities as adults had received some arts education during their childhood. 4/4/2012 Econ 191ac -- Lecture 2 13

14 Homework from Wednesday 4-2 Question 3: A Good Answer A 2007 NEA report on American reading habits claims that teens and young adults spend less time reading than older Americans. What evidence does it provide? Can you think of some explanations? (Daniel) The report shows evidence that the percentage of 18 to 24 year olds reading literature has declined by 28% from 1982 to Some explanations that were brought up by the report include an increase in the number of young adults that watch television or spend time on the Internet. 4/4/2012 Econ 191ac -- Lecture 2 14

15 Modelling the Live Performing Arts 4/9/2012 Econ 191ac -- Lecture 3 15

16 ? Modelling the Live Performing Arts: What Units Go on the Y Axis? (1) 4/9/2012 Econ 191ac -- Lecture 3 16

17 Modelling the Live Performing Arts: What Units Go on the Y Axis? (2) ticket price 4/9/2012 Econ 191ac -- Lecture 3 17

18 Modelling the Live Performing Arts: What Units Go on the X Axis? (1) ticket price? 4/9/2012 Econ 191ac -- Lecture 3 18

19 Modelling the Live Performing Arts: What Units Go on the X Axis? (2) ticket price seats per performance 4/9/2012 Econ 191ac -- Lecture 3 19

20 Characteristics of Live Performing Arts Markets (1) Fixed supply per performance implications for shape of supply curve? 4/9/2012 Econ 191ac -- Lecture 3 20

21 Fixed Supply Per Performance ticket price S 1 Q S1 seats per performance 4/9/2012 Econ 191ac -- Lecture 3 21

22 Characteristics of Live Performing Arts Markets (2) Fixed supply per performance implications for shape of supply curve? Ticket price is set before demand is known 4/9/2012 Econ 191ac -- Lecture 3 22

23 Ticket Price Is Set Before Demand Is Known ticket price S 1 P 1 a Q S1 seats per performance 4/9/2012 Econ 191ac -- Lecture 3 23

24 Characteristics of Live Performing Arts Markets (3) Fixed supply per performance implications for shape of supply curve? Ticket price is set before demand is known Consumers care about ticket price implications for shape of demand curve? 4/9/2012 Econ 191ac -- Lecture 3 24

25 Case 1: Consumers Care About Price ticket price S 1 P 1 a b D o Q S1 seats per performance 4/9/2012 Econ 191ac -- Lecture 3 25

26 Case 1: Show Is a Hit! ticket price S 1 P 2 c P 1 a b D Excess Demand Q S1 Q S2 seats per performance 4/9/2012 Econ 191ac -- Lecture 3 26

27 Case 1: What Would the Producer Like To Do? ticket price S 1 S 2 P 2 c or P 1 a b D Q S1 Q S2 seats per performance 4/9/2012 Econ 191ac -- Lecture 3 27

28 Case 2: Show Is a Flop. ticket price Excess Supply S 1 P 1 b a P 2 c D Q S2 Q S1 seats per performance 4/9/2012 Econ 191ac -- Lecture 3 28

29 Case 2: What Would the Producer Like To Do? ticket price S 2 S 1 P 1 b a P 2 c D Q S2 Q S1 seats per performance 4/9/2012 Econ 191ac -- Lecture 3 29

30 Either Case: What Would the Producer Like To Do? ticket price P 1 b Price discrimination allows producers to capture willingness to pay all along the demand curve P 2 D Q S2 Q S1 seats per performance 4/9/2012 Econ 191ac -- Lecture 3 30

31 Price Discrimination Helps Ameliorate High Variance in Demand Price tickets according to quality of seat Better view higher price Provide discounts to groups of consumers with lower ability or willingness to pay Students, elderly Make day-of-performance discount tickets available at selected sites Half-price TCKTS booth in Times Square has been tremendously successful 4/9/2012 Econ 191ac -- Lecture 3 31

32 How Are Ticket Prices Really Determined? 4/9/2012 Econ 191ac -- Lecture 3 32

33 Who Determines the Ticket Price? Rock Concert Example (1) Promoter hires act, rents venue. All three agree on revenuesharing rule (venue often receives fixed fee) Source: Courty, JEP, Spring /9/2012 Econ 191ac -- Lecture 3 33

34 Who Determines the Ticket Price? Rock Concert Example (2) Promoter (sometimes plus act) decides ticket price Source: Courty, JEP, Spring /9/2012 Econ 191ac -- Lecture 3 34

35 Who Determines the Ticket Price? Rock Concert Example (3) Tickets issued at box office and by agency have face price on ticket. Agencies add a processing fee to this Source: Courty, JEP, Spring /9/2012 Econ 191ac -- Lecture 3 35

36 Who Determines the Ticket Price? Rock Concert Example (4) Brokers and scalpers get tickets from the box office, agency, and other buyers Source: Courty, JEP, Spring /9/2012 Econ 191ac -- Lecture 3 36

37 Who Determines the Ticket Price? Rock Concert Example (5) Source: Courty, JEP, Spring 2003 Brokers are independent businesses not affiliated with the promoter; they typically carry a large inventory of tickets for many events, often focusing on the best seats. They typically sell at above face price 4/9/2012 Econ 191ac -- Lecture 3 37

38 Who Determines the Ticket Price? Rock Concert Example (6) Source: Courty, JEP, Spring 2003 Scalpers sell tickets at the front of the venue just before the event. They don t typically post prices (but usually sell above face price), and often violate ticket resale laws 4/9/2012 Econ 191ac -- Lecture 3 38

39 In Sum Ticket prices do go up when the show is a hit, but Does not affect season ticket holders Does not affect those able to purchase from box office or Ticketmaster Premium over face price goes to brokers and scalpers, not promoters, venues, or acts Ticket prices don t fall by much when the show flops Brokers/scalpers can t sell cheap tickets Show must close down if can t cover variable costs 4/9/2012 Econ 191ac -- Lecture 3 39

40 Hit or Flop? Determinants of Demand and Their Elasticities 4/9/2012 Econ 191ac -- Lecture 3 40

41 What Determines a Hit or a Flop? Nobody knows what determines popularity of any single cultural product (CATS, Phantom, The Scream, American Gothic, etc.) 4/9/2012 Econ 191ac -- Lecture 3 41

42 What Determines a Hit or a Flop? Nobody knows what determines popularity of any single cultural product (CATS, Phantom, The Scream, American Gothic, etc.) But certain factors influence demand for all products, including cultural products 4/9/2012 Econ 191ac -- Lecture 3 42

43 What Determines a Hit or a Flop? Nobody knows what determines popularity of any single cultural product (CATS, Phantom, The Scream, American Gothic, etc.) But certain factors influence demand for all products, including cultural products Such as? 4/9/2012 Econ 191ac -- Lecture 3 43

44 What Determines a Hit or a Flop? Nobody knows what determines popularity of any single cultural product (CATS, Phantom, The Scream, American Gothic, etc.) But certain factors influence demand for all products, including cultural products Price Income Prices of rival goods Prices of complementary goods Tastes 4/9/2012 Econ 191ac -- Lecture 3 44

45 How Do These Factors Affect Demand for the Arts? From SPPA, education seems most important determinant of taste, but hard to measure Economists typically take tastes as given Assume choices are rational (and usually none of our business) Can best influence behavior through changes to prices and incomes How much do changes to price or income affect the demand for cultural products? 4/9/2012 Econ 191ac -- Lecture 3 45

46 Or Technically, What Is the Elasticity of Demand for Cultural Products? Elasticity is the percent change in quantity demanded of good i in response to a percent change in some other variable Own-price (P) elasticity: Q/Q = ε p P/P Income (Y) elasticity: Q/Q = ε y Y/Y Cross-price (P j ) elasticity: Q i /Q i = ε pj P j /P j 4/9/2012 Econ 191ac -- Lecture 3 46

47 Own-Price Elasticity: Some Terms ε p < 1, demand is inelastic When the price rises, the quantity demanded falls by a smaller percentage ε p = 1, demand is unitary ε p > 1, demand is elastic When the price rises, the quantity demanded falls by a larger percentage Elasticity rises with the availability of substitutes 4/9/2012 Econ 191ac -- Lecture 3 47

48 Homework for Weds 4/11 You are the producer of a hit Broadway show with excess demand at the current ticket price. You want to maximize revenue. You have the option of either raising the ticket price or moving to a larger theater. There are no transaction costs associated with the move, and many Broadway shows that compete with yours. What should you do? Explain your answer in terms of the own-price elasticity of demand. Use graphs to illustrate. 4/9/2012 Econ 191ac -- Lecture 3 48