Thursday, October 8, 2009

Ticketmaster/LiveNation merger challenged

The UK's Competition Commission is worried about the loss in competition in the market for live event ticketing services:
Prior to the announcement of the merger, Live Nation had signed an agreement with CTS to provide ticketing services for its live music events and venues in the UK. The CC believes that this agreement with Live Nation would have provided CTS with a foothold in the UK market from which it would have grown, increasing significantly the degree of competition in a market which is currently dominated by Ticketmaster and one other large ticketing agent.
Apparently, they didn't think much of the claimed efficiencies, or maybe they missed my characterization of them:
Vertical mergers often yield tangible benefits, which can be characterized under the broad heading of incentive alignment.5 When firms producing complementary services do business with one another, incentive conflicts naturally arise. These conflicts can be over what price to charge, how much to spend on promotion, or on how best to innovate in response to changing conditions. A merger among the providers of these services would likely help manage these incentive conflicts and result in levels of price, promotion, and innovation that would both reduce the size of the wedge between what consumers pay and what performers receive, as well as increase output.
Perhaps the most common incentive conflict is over what price to charge. The double markup occurs when a producer marks up the price of its product or service above marginal cost, and the next producer in the supply chain then marks up its price again, above these already marked-up input costs. You end up with a price that is too high, with too few tickets sold, or too few concerts performed. With vertical integration, the double mark-up can be reduced to a single mark-up, which would reduce size of the wedge between what consumers pay and what performers receive. This would result in lower prices, more tickets sold, more concerts performed, or all three. In popular jargon this is known as “eliminating the middleman.”

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