Markets Will Clear...

...whether you like it or not.

Tickets to the Coachella music festival went on sale today at 10am. Last year, I figured I had a while to dither about the decision as to whether to go, and after a week, they were sold out. Bam! Your $300-odd ticket is now a $500-odd ticket.

Okay, so this year I'd learned my lesson - I was going to buy it straight away. They went on sale at 10, by 10:15 I was online trying to buy tickets to the first weekend.

Nope, couldn't get them. They were gone. Apparently friends who tried even earlier, even at a few minutes past ten, weren't able to get them. The website would still list them as being available, but you'd try to buy without success. There were some still available for the second weekend, but I couldn't make it then.

It makes you wonder why the promoters don't set the price higher. I have some sympathy - this year, they increased the length from one weekend to two weekends, thus doubling supply. Didn't help - at the face value of  $330 or whatever, there was still a shortage.

It's always surprising how promoters end up leaving money on the table for scalpers. If the market-clearing price is $400, you're just giving free money to scalpers by setting the price at less than this. Granted, firms only get a small number of guesses at the market-clearing price. But surely it wouldn't have been hard to look at the secondary market prices from last year, hire some whizz-bang economist specialising in estimating demand curves, and figure out the correct price.

Nope, that would be too hard.

I did however make one very stupid error, which I now regret.

Once I saw that weekend 1 was effectively sold out, my instinct was 'Oh well, guess I'm buying on the secondary market. Let's read some other websites'. What I should have been doing is trying like crazy to buy tickets to the second weekend. It's a pretty damn good bet that if the first weekend is sold out in 20 minutes, the second weekend will be sold out pretty quickly as well. What you've got is a very strong signal that the tickets are underpriced. As a result, you ought to be buying weekend 2 tickets with the plan of re-selling them, doing this as a hedge against the likely price you're going to have to pay in the secondary market for your weekend 1 tickets.

Sure enough, on Stub-Hub,  weekend 1 passes start at $550, and weekend 2 passes start at $500. It would have been a pretty good hedge indeed.

Which just goes to show - mispricing doesn't hang around long. It's not enough to recognise it, you have to recognise it quickly and act on it. The race goes not always to the swift, but the arbitrage usually does.