Thursday, June 18, 2009

Don't pass go, collect $200

IMP, the company that is operating Merriweather Post Pavilion, has filed a lawsuit against Live Nation (the owner of Nissan Pavilion and many other concert venues across the country). The suit claims that Live Nation is operating as a monopoly by locking up deals with artists to perform exclusively at Live Nation venues.

I am always suspicious of claims that X company is a monopoly. Often, the parties making this claim are doing it simply because the alleged monopoly firm is a better competitor. So natch, even thought I know jack squat about the entertainment biz, I am skeptical of IMP's lawsuit.

Monopolies sell their goods or services at the price in which marginal revenue equals marginal cost. Marginal revenue is always less than the price, because as the price falls to sell one more unit of output, the lower price must be taken on all previous units of output. I would think that the marginal costs of putting on a concert are pretty low, as most of the costs are fixed (cost of the stage and equipment, insurance, security, etc.) Although, the performers probably get a payment which is some function of the level of attendance. That payment, which obviously goes to the artist, is probably the largest component of marginal cost and is probably pretty uniform across most areas of the country.

Therefore, I find it difficult to believe that Live Nation can increase their fixed costs by an amount required to get an act to perform only at a Live Nation venue and still be able to make more money than without incurring the burden of those additional costs and letting the act play whatever venue it wants.

One thing I noticed by briefly comparing prices online between Nissan and Merriweather is that Nissan seems to be much better at segmenting the market than Merriweather. Nissan has about 6 different price levels of seating with different prices depending how close you are to the stage, whereas Merriweather only has lawn seats and maybe two levels of prices in the pavilion. It seems like Nissan has a strong advantage by charging more for the better tickets. Oh, and Nissan's lawn tickets are consistently cheaper than Merriweather's for similar acts.

I think what is really going on is that Live Nation is just a better run company than IMP.