Monday, April 25, 2011

Are symphony concerts overpriced?

The sorry financial condition of the great Philadelphia Orchestra, following on similar news out of Detroit, has Philly boy Atrios concerned, and he seems to accept that the ticket prices are just too damn high. He cites some evidence on 1975 prices and notes that "Converted into 2005 dollars... the top ticket price to hear the Philadelphia Orchestra today should be $39.33." Instead, it's the equivalent of $122.

So how come? One possibility is that the orchestra has underestimated the demand elasticity, and is simply over-pricing its product. This seems to be Atrios's view. Or it could be that the union musicians are grossly overpaid and need a good smackdown.

But my sense is that what we are seeing is simply the classic(al) example of Baumol cost disease. William Baumol noted many years ago that the production of some goods is fundamentally skilled-labor intensive and not subject to cost-saving technological change. As the cost of other, usually high-tech goods declines, the relative price of goods like live symphony concerts rises, and deflated by a standard price index the real price is bound to be higher.

In light of this I'm inclined to say: If you want to hear first-class musicians playing live, you simply gotta pay. Yes, playing Farmville is a lot cheaper than it was in 1975! If you prefer that kind of entertainment, this is a great time to be alive...

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