The reigning couple of music, Jay-Z and Beyonc, had a very profitable year in 2014. Until then,

The reigning couple of music, Jay-Z and Beyoncé, had a very profitable year in 2014. Until then, these long-standing individual artists had never headlined a tour together. When they combined their creative forces for their “On the Run” tour, the demand for Jay-Z and Beyoncé tickets went through the roof. When the tour wrapped up in August 2014, its 19 shows had grossed over $100 million in ticket sales with 90% of the seats sold.

One music industry expert noted that no one should be surprised by this. “With nearly 200 million records sold between them and 36 total Grammys, Jay-Z and Beyoncé are a creative force to be reckoned with. When their talents are combined, the sky is the limit—at least as far as ticket prices are concerned.” And the market agreed, with tickets selling on the websites of ticket resellers such as StubHub and Tickets. Now for an average price of $342.67.

Yet, despite the high demand for their tickets, Jay-Z and Beyoncé received significantly less than $342.67 for an average ticket. Why? Omar Al-Joulani, the producer of the tour explained that tickets were priced to be inclusive with tickets starting at $40 and running no higher than $275. “Our strategy was to price tickets so that wherever you were on that ticket chain you had an opportunity to attend the show.”

So if you were able to obtain a ticket directly, either by lining up at the venue box office, or getting a ticket online from a direct seller such as Ticketmaster, you could have made a pretty penny by reselling your ticket at the market price. Perhaps this was Jay-Z and Beyoncé’s way of sharing the wealth as well as their music.

Questions:-

1. Use the concepts of consumer surplus and producer surplus to analyze the exchange between Jay-Z and Beyoncé and their fans in the absence of ticket resellers. (That is, assume that everyone buys a ticket directly and goes to the concert.) Draw a diagram to illustrate.
2. Referring to the diagram drawn in response to question 1, explain the effect of resellers on the allocation of consumer surplus and producer surplus among Jay-Z and Beyoncé and their fans.