How Did Broadway Tickets Get So Expensive? Blame the 1%

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The most basic thing to say* about why theater tickets are expensive to buy is that theater is expensive to make. Economist William Baumol famously observed that it's really hard to make a string quartet more efficient, because it's not feasible to replace the live violinist with a robot or with a cheaper Chinese violinist Skyping in from Shanghai. Similarly, you can't perform "A Long Day's Journey Into Night" with fewer than four principal actors. You also can't make it without a director, or a costume team, or a set designer, and so on. Prices are people, and theater is labor-intensive work, and that makes a night at the theater necessarily an expensive thing to consume.

But it doesn't explain why average paid admission has increased by a fifth since before the recession to $93, according to new statistics from the Broadway League -- nor why non-musical ticket prices grew by about 30%. Here the answer comes from the demand side. Broadway plays and special events are limited-time-only star-studded events that draw lots of rich people. And producers have gotten wise to the idea that rich people are extremely price insensitive when it comes to seeing celebrities on the Great White Way, especially if there's only a short window. The message rich people appear to be sending is: If you charge it, we will pay it.

In 2001, "The Producers" taught real-life producers that theater-goers were willing to pay $500 for a two-plus-hour musical. Since then, more shows have started using dynamic pricing to charge the most when they expect demand to be strongest. Last year, "Hugh Jackman: Back on Broadway" (a one-man show, which is as labor-efficient as you can get) made $1,468,189 for eight performances, a record for its theater.

The limited-engagement star-studded show, which can push $600 a pop, is a perfect storm for high prices. Covering the celebrity's pay check and the cost of the space requires producers to charge high prices to cover the costs in a short period. The short run itself creates scarcity, concentrating audience interest in a small window where they're less price sensitive. But perhaps the key factor is that prices rise as long as people will pay them, and if the 1% is willing to pay $400, $500, and $600 for one night's entertainment, average prices will continue to rise as producers experiment with ways to price dynamically and take advantage of rich folks' love of the theater. Throw in the rise of tourism to New York -- up 8% since 2008 -- and you're a long way toward understanding why Broadway ticket prices are going to keep going up as long as the wealthy keep getting more wealthy. If rich people want to pay $600 for one night at the theater, who are producers to try and stop them?

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*I've just moved to New York, and so to make myself feel at home in this strange and hyper-kinetic city, I decided to make my first city post about the most obvious of New York topics: complaining about how expensive things are. And compound the cliche, I'm going to talk about Broadway. Sorry. This won't be a habit.
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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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