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An E-Commerce Paradox

Here's a little puzzler for everybody to mull over as we ease into the weekend:

1) TicketMaster charges extra if you buy a ticket online or on the phone. But if you show up in person at a facility to get your ticket, no service charge applies.

2) Airlines charge nothing if you book online--many will throw in some extra frequent-flyer miles for doing so--but if you call them, they'll slap on a service charge. If you show up at a city ticket office or buy at an airport, the service charge is even higher (for example, United Airlines adds $20 for an in-person purchase, $15 for one made over the phone).

Your challenge: Explain how these two fee structures can both make sense, given that in each case you're buying the same basic product and that the call-center or ticket-counter employees are paid roughly the same. Good luck!

By Rob Pegoraro  |  January 25, 2008; 10:17 AM ET
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Could it be that Ticketmaster has a monopoly for many venues and events? They can charge as much as they can get from their customers. They can do this even if the fees have no relation to their actual cost structure.

It seems Ticketmaster does not care that many/most people believe they are a huge ripoff. Let's say a ticket has a face value of $50 but ends up costing me $65 because of all of Ticketmaster's fees. I feel ripped off even before I go to the event! With all the kickbacks and exclusive deals, I have no idea where the $65 goes and don't care. Just charge us $65 and I wouldn't hate Ticketmaster so much. But, oops, they are a monopoly so they don't have to care.

As Lily Tomlin said, we're the phone company, we don't HAVE to care.

Posted by: Josey23 | January 25, 2008 11:07 AM | Report abuse

1) When you buy online from TicketMaster, then TicketMaster slaps on extra charges. When you go to the box office to buy a ticket then TicketMaster is not involved so the extra charges don't apply.

2) When you buy online from an airline, they don't have to pay a clerk to process your order, so they can afford to give you a discount. When you call or buy at the airport it costs the airline more.

Posted by: Jonathan Tappan | January 25, 2008 11:14 AM | Report abuse

An interesting puzzler, to be sure! But I think it may make sense.

Airlines are trying to woo you away from the ticketmaster of airfares (Expedia, etc.) and so have no fees. You can't buy from Expedia at the airport (even if they have WiFi, they won't sell you an immediate ticket- it's too quick), so airlines can add on fees there. They add fees over the phone so that you use their cheaper interface- their websites.

Ticketmaster has no competition, so they can charge fees for the service of ahead of time sales. There is a strong culture of being able to buy tickets at the door for events (unless sold out), so venues continue this, and generally to their benefit, as any unsold tickets at that time would be opportunity loss. Either Ticketmaster doesn't handle this, or they handle it with an agreement not to charge extra.

Posted by: josef | January 25, 2008 11:31 AM | Report abuse

It could be that Ticketmaster usually adds value to the experience of buying tickets. Waiting in line for tickets sucks.

Posted by: J | January 25, 2008 11:45 AM | Report abuse

Ticketmaster sucks. That basically explains it all.

Posted by: MCRen | January 25, 2008 11:58 AM | Report abuse

Ticketmaster adds value? AHAHAHAHA! Sure--where value = website that's a PITA to use, inaccurate search engine, and ridiculously large fees that they don't mention until you are actually buying the ticket.

Posted by: BW | January 25, 2008 12:04 PM | Report abuse

Simple. Ticketmaster has an established business model which the public has accepted. The airlines are trying to change their business model. Consequently, they're using a fee system to induce their client base to change the way they do business. Look at how ATMs were introduced to the public. Originally, they had no fees and were pushed as a money- and time-saving alternative. As the public accepted them, they were more widely distributed. Once they became the norm, fees were introduced. Don't be surprised if the airline industry follows the same path.

Posted by: Bryan | January 25, 2008 12:41 PM | Report abuse

If I show up at a venue to buy tickets, there's an added advantage to that venue: I'm probably already there for some other show or reason, so they'll be getting more of my money. And I'm likely to make multiple transactions, thus avoiding multiple Ticketmaster service charges. By not including a service charge, the venue is going to probably get more of my money anyway.

If I show up at an airline to buy a ticket, I'm probably not going to make more impulse ticket purchases or do anything else that gives the airline more money. Thus they can lump in the service charges.

Posted by: Adam | January 25, 2008 12:57 PM | Report abuse

I have always thought TicketMaster's idea of charging a service and handling fee for online ticket purchases (even if you print them in your home) is nothing more than gouging the consumer. Most of these events only sell through ticketmaster so the consumer really has no other choice. Except to take your chances and buy at the gate.

Posted by: Bart | January 25, 2008 1:05 PM | Report abuse

I don't know that the public "accepts" the Ticketmaster business model but it's all we have, for now. The Ticketmaster model is to sign exclusive contracts that give it monopoly control over ticket sales.

Why would a venue or artist do that? Because Ticketmaster's business model is to kick back a LOT of that money to them. Everybody wins! Customers make their "buy" decision based on the $50 face value but end up paying $65; these folks have economic theory down pat.

The next step in ticket buying is what to do about consumer surplus (look it up) and the resale market. Many entertainment tickets are resold on Stubhub or by other scalpers for higher prices, which means Ticketmaster and its partners are leaving money on the table. This is where Ticketmaster could learn something from the airlines.

Posted by: Josey23 | January 25, 2008 1:05 PM | Report abuse

To the example of ATM fees, they only apply if you use an ATM that doesn't belong to your bank. What ticketmaster is doing is akin to your bank charging you to use their own ATM. Unfortunately, unlike banks, most event organizers only sell tickets through ticketmaster.

Posted by: Bart | January 25, 2008 1:07 PM | Report abuse

This is basic economics. Both venues have some monopoly power (Ticketmaster frequently has the only tickets for a show, a particular airline will often of the only direct or convenient flight to a city). This makes it profitable to charge different prices to different customers. Broadly speaking, you want to charge more to people who are willing to pay more.

Now, who is willing to pay more for an event, someone pressing refresh repeatedly on the Ticketmaster website, or someone walking home from the metro passing the Verizon center who sees that there's a hockey game in the evening?

Who is willing to pay more for an airline ticket? Someone online, where you can find perhaps dozens of airlines offering flights to where you want to go? Or someone who is actually in the airport? No one has to pass through an airport on the way home (at least not anyone who wouldn't get an employee discount anyway), so if you're already in an airport, you are probably traveling, tired, distracted, and rushed. You won't notice or object to a $25 charge unless you're particularly savvy.

Yes, the term for this is "price discrimination" and it sounds very wrong. However, Ticketmaster wouldn't be in operation if it couldn't charge people to use their website. The airlines couldn't stay in business if they charged everyone $150 for each flight. Price discrimination allows them to give discounts to people who can't afford the higher fares, yet still make a profit. It's not perfect, but everyone does win.

Posted by: JohnOfCharleston | January 25, 2008 3:51 PM | Report abuse

This isn't rocket science
Ticketmaster's business model is to make money on what it can. The venue charges the price, so ticketmaster makes you pay for the privilege of buying online. And, as others pointed out, no competition.

The airline's business model is to fly you places. To that end, they want to cut costs so they offer a discount if you can do it without talking to them.

Posted by: Aaron | January 25, 2008 4:03 PM | Report abuse

Aaron and others:
It's not just enough to state that Ticketmaster will charge you whatever they want to buy online. First off, they can't. If they tried to charge $5,000, they'd get very few takers. Second, you have to explain why they charge a surcharge for buying online, but NOT in person. This is the relevant question. Ticketmaster wants to make money, why not charge EVERYONE the surcharge?

Posted by: JohnOfCharleston | January 25, 2008 4:06 PM | Report abuse

Another thing I don't understand - Ticketmaster will mail your tickets for free but they make you pay to print them out at home, even though having you print them at home is obviously cheaper for them.

Posted by: Falls Church | January 25, 2008 4:50 PM | Report abuse

Use MS Ticket

Posted by: steve ballmer | January 25, 2008 6:50 PM | Report abuse

Ticketmaster has gotten very good at price differentiation, but the key to the question here is legality, not economics.

Ticketmaster got in a lot of hot water in the 90s for monopolistic behavior. Anybody else remember Eddie Vedder and the rest of Pearl Jam testifying in a subcommittee on Capitol Hill? The way they got out of that hot water was by pointing to their arrangement with venues -- they only have exclusivity to sell non-ticket booth based tickets. So when you're at the ticket booth, you're buying directly from the venue, and Ticketmaster "isn't involved" (even though they are).

The different prices for shipping options are purely based on what the market will bear - primo dollar for overnight, all the way down to an extra convenience fee for you to print them on the spot. (The other reason there's a charge for those print on-the-spot tickets is that resellers on eBay and elsewhere use those converted to PDFs.)

As other commenters have said, airlines actually pay the call center folks and gate agents -- anything they can do to cut down on call volume saves them money in salary and support costs.

Posted by: Nate | January 26, 2008 1:50 PM | Report abuse

Everyone knows that on-line transactions cost less for the vendor to process than in-person transactions. That is why Ticketmasters imaginative and ridiculous on-line charges have enraged me for years.

Nonetheless, there is a simple explanation why Ticketmaster charges extra for on-line transactions and airlines do just the opposite.

Tickmaster has a monopoly on tickets for any given event. So they behave like a monopoly and charge whatever they can get away with. They don't care if you curse them out. They know that, like it or not, most people will shell out the extra dollars in order to avoid having to make a trip to the ticket office. You don't have any other options.

Airlines, on the hand, know that if you can get your plane ticket cheaper from a competitor, you will. Consequently, they pass the savings in on-line processing costs along to the consumer. That is why it is cheaper to buy an airline ticket on-line than in person.

In a phrase, airline pricing is competitive, event pricing is not.

Posted by: Brad | January 28, 2008 3:21 PM | Report abuse

Websites cost money also. In business nothing is free. Competition decides the price.

Posted by: Ted | January 29, 2008 3:31 PM | Report abuse

Brad makes a dangerous comment, "Airline pricing is competitve, event pricing is not". Airlines use dynamic pricing, continuously adjusting the price based on supply and demand. If Ticketmaster were to do the same, many event tickets would never be affordable to the general public - only the rich need apply.

Posted by: Stoney | February 1, 2008 7:17 PM | Report abuse

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