How to sell a concert ticket

Imagine you are gifted with three tickets for a good-quality classical music concert taking place the next day. You take one for yourself, you have no family, no boyfriend, none you shall assume would be surely pleased to go. You start looking for people not to throw away the tickets. Hours passes.Then you try modern methods and use mailing lists. Miracle. Twenty people manifest their onterest for those tickets. You decide that the best way for candidates to selecte themelves is to set a price for the tickets, so that also your magnanimous action can generate a little income. You also know that the economic recipe for an excess in deman is highten the price. How do you set the price? If you have studied humanities and/or you do not really know trivial human nature you will be do like I did - you imagine how much you yourself would happily pay, in order to have that ticket. Then you add a markup from zero to nEuro depending on the risk of not being able to sell that you want to take upon yourself (probably then the less the time left, the lower the markup) and you annouce that price.That's a Mistake!If you are an economist or a hero of common sense (which is basically the same), you have in mind the notion of "reserve price", i.e. you know that there is a certain price level which makes the individual perceive that the benefir coming from that amount of money and the benefit coming from the concert are exactly the same. The "right price" is therefore not the price that YOU individually think is fair, plus a markup, but a price minimally lower than the reserve price of the potential BUYER of the ticket.This may sound pretty simple, however it is surprising that the right price for you as a seller is not equal to the right price for you as if you were a buyer - exactly because you are not the buyer. The right price for you as a seller is the price which permits you to make as much profit as possible just before the counterparty abandons you.In the example here given, you have to set that price which leaves just one buyer still willing to accept the deal.How do you guess the reserve price of the ticket?Well, we exclude that you can "feel" it or have an idea of it after many empirical experiences. Two methods are feasible. The first is the Diych auction: you write to everybody offering to sell at a quite high price. Then you rewrite lowering the price a bit till one of the competitors accept. Then you sell. This is the most direct method to make the buyers reveal the seller what their reserve price is. It involves some externalities though: your reputation. You reveal your game very soon, and can pass (mistakenly) for a not generous person. On the other hand, I think it is more difficult for participant to collude in a Ditch auction than in a normal auction, but this might not be theoretically true.The second method is a normal auction, where you set a minimum price and you say: well, now the one who offers more win. Some problem with timing are possible, because maybe the best offere is away from the pc (but this also stand in the Dutchm even if the path of the Dutch is more predictable than a normal auction). This is a bit more inefficient, not from a moral or image-point of view, but because you cannot arrive to extract the reserve price, if the participant with the higher reserve price is an outlier.That's it. But Whatever method you choose, do not do like the humanist. This does not mean that you are generous, this just means that you are ignorant.

Etterbeek, Brussels, 14 November 2008