Melissa Harris at the Chicago Tribune has written a nice story about Purple Pricing at NU. (The photographer asked us to look serious and we complied!) Melissa also interviewed Nick Kokonas whom we talked to originally. He decided not to use auctions for Next restaurant tickets. Here is his current rationale:
“Even if we could charge more, I don’t want to,” he said. “The economists say I’m being inefficient; that it’s a rational thing to take more money, if people are willing to pay it. But I’m convinced people would be willing to pay it only once. If we allowed people to pay $2,000 to eat at Next, but it feels like it’s worth $500, they’re not coming back. And I’m not in this for a one-time sale of some gizmo. We want to be around for 20 years.”
But here is the point: Since the tickets can be resold, they end up on Craiglist etc and people pay $2000. People do not end up with the great deal Kokonas wants to give them to persuade them to be repeat customers. They still end up paying $2000 for a $500 meal but the extra $1500 goes to a scalper and not to Kokonas. The scalpers are exploiting Kokonas’s “irrationality” to make money. So, if Kokonas really wants to achieve his objective he must be more old school and sell tickets at the door. This subverts his business model as Next becomes more like Frontera Grill with a set menu and random revenue stream. A compromise might be to auction off some fraction of seats and sell some at the door. This at least captures scalper surplus. If you do not want the extra money, use it to set up a Achatz- Kokonos Institute for the Culinary Arts (AKICA).
In the Tribune article, Jeff talks about interesting ideas to leverage the secondary market if resale can be fully controlled by the originator. When this happens, it would be possible to implement the Kokonas social welfare function: Set a price P for a ticket. All resale has to go through your system and the resale price must be P. You can set P as low or as high as you want depending on your desire to give consumers a good deal.
Cheap Talk 
9 comments
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January 6, 2014 at 3:22 pm
AS
Customers paying $2000 for a $500 ticket from a scalper get a warm happy feeling about Kokonas and an angry feeling towards the scalper. Feelings towards Kokonas determine whether someone is a repeat customer. Does this change your model?
January 8, 2014 at 10:10 am
Sandeep Baliga
Kokonas should sell them himself anonymously on resale market.
January 6, 2014 at 10:06 pm
wellplacedadjective
Are they really being resold on Craigslist for $2000? I recall Next threatening to cancel tickets they saw listed above face value. In fact, I just browsed Chicago Craigslist and found only a handful of listings.
January 8, 2014 at 10:10 am
Sandeep Baliga
Would love link if you have it.
January 11, 2014 at 2:17 pm
nick kokonas
AS is entirely correct in my thinking: yes, occasionally tickets were scalped for over face value. But the customer ends up knowing that it was not NEXT and its ownership that charged over-value but rather someone else. This keeps positive feelings about the restaurant and the thought (hope) that they will be able to buy them for real value next time they come back.
Your suggestion that I sell them anonymously on the resale market is both unethical and unwise…. it is akin to posting anonymous, positive reviews of your own restaurant. I know several instances where the anonymity of the internet has been pierced with great consequences to those individuals. I have no interest in doing that.
Sports are very different than dining. I am very comfortable that our marketing and pricing strategy is what’s best for us in the long-term. And I remain pretty surprised that you don’t consider the marketing / good-will / PR issues in your economic models. As a derivatives trader for over 10 years I used rigorously quantitative tools to analyze options volatility and pricing — but I also kept a good measure of human psychology at the forefront. Perhaps that is why so few economists do well as traders.
— Nick Kokonas, co-owner, Alinea/Next/ The Aviary
January 13, 2014 at 8:09 am
Sandeep Baliga
Nick: My reply above was facetious – of course it is dangerous to your rep if you trade anonymously on secondary market. (Economists do work on reputation.)
My main point is that your objective of giving a fair deal – which makes fine sense from a repeated game perspective – is only truly achievable if you control resale of tickets. I find it hard to believe that a person getting scalped who resents it will come back whether it is you or someone else who overprices tickets.
Also, sports teams can have similar objectives – they want to give a good deal to fans. But if buyers of underpriced tickets turn arouns and resell them ata higher price, the team has not really acheived its objective. They also need to control the resale market.
Thanks for responding to my post,
Sandeep
May 14, 2014 at 6:44 pm
James Houlihan
How about an updated post on Next now that the restaurant routinely fails to sell out 4-tops after 8:30 or so?
June 15, 2014 at 10:33 pm
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