Valuation Uncertainty and Demand Dynamics: An Application to Tickets Markets

Abstract

In ticket markets, consumers often learn their valuations over time meaning that they do not know how much they value the good until they are about to consume it. When consumers' valuations can change arbitrarily over time, the aggregate demand also changes over time, but not so arbitrarily. In fact, the inverse demand gets steeper over time because consumers' valuations become more dispersed. This insight on the demand dynamic suggests several implications about the way prices and quantities change as tickets are sold closer to the consumption date. These implications are consistent overall with several pricing practices observed in ticket markets which are difficult to explain under standard pricing theory such as revenue management, under-pricing resulting in rationing, and control of resale rights.

JEL Classification: D11