She, like many artists, doesn’t want to raise the price of her concert tickets even though there is excess demand.  By keeping the price low she allows fans who could not afford the market clearing price to see her concerts.  She is effectively paying to allow them to enjoy her shows.  Does this make her an altruist?

A textbook argument against, but one that is wrong, is the following.  At the low price there is a market for ticket scalpers.  Ticket scalpers will raise the price to the market-clearing level.  Those fans who would sell their tickets to scalpers reveal that they prefer the money to the tickets.  And they get the money in exchange for the tickets. Likewise those that buy tickets from scalpers reveal that they value the tickets more than the money. So the secondary market makes everyone better off.  So if Miley Cyrus were truly an altruist she would allow this to happen rather than paying a price to prevent it.

The problem with the argument is that it works only because the ticket scalper was unanticipated.  If all parties knew that tickets would sell at the market clearing price then the “true fans” that Miley is targeting would never actually get a ticket in the first place and this would make them worse off.  They would never get a ticket either because they couldn’t afford it, or if they were originally allocated by lottery, the additional rents would attract more entrants to that lottery.

So we can’t argue that Miley is not an altruist.  But we can argue that Miley’s refusal to raise prices is perfectly consistent with profit maximization.  Here is a model.  A fan’s willingness to pay to see Miley Cyrus in concert is a function of who else is there.  It’s more fun if she is singing to screaming pre-teen girls because they add to the experience.  It’s no fun if she is singing to a bunch of rich parents and their kids who don’t know how to cut loose.

With this model, no matter how much Miley would like to raise the price to take advantage of excess demand, she cannot.  Because the price acts as a screening instrument.  Higher prices select a less-desirable composition of the audience, lowering willingness to pay.  The profit maximizing price is the maximum she can charge before this selection effect starts to reduce demand.  At that price and everywhere below there is excess demand.

This is related to a paper by Simon Board on monopolistic pricing with peer effects.