Preface: You know it’s gotten pretty bad when you’re overthinking a blog post written by a group called “Overthinking It.”
One of my nerd soul mates over at Overthinking It put together some interesting data from New York’s Comic-Con, including some potential explanations for why the prices that celebrities charge for autographs are what they are:
Anyway, about those price tags. I’m kind of fascinated by the idea of distilling a celebrity’s popularity among the Comic-Con crowd into a single number. It’s an object lesson in all sorts of economic principles:
- Supply and demand. A celebrity can sign (supply) a finite number of autographs. Demand among the Comic-Con crowd can range from crushingly intense to “meh.”
- Opportunity Cost. A celebrity can make a lot of money selling autographs, but could s/he make even more money by doing something else with that time? What’s the trade-off?
- Signaling. Perhaps an older celebrity who hasn’t been in anything notable for a while wants to signal to the public an “A-list” image by setting a high price for an autograph.
And the price data:
|David Duchovny (X-Files)||$80|
|Patrick Stewart (Star Trek, X-Men)||$75|
|William Shatner (Star Trek, T.J. Hooker)||$75|
|Gillian Anderson (X-Files)||$60|
|Hulk Hogan (Wrestling Legend)||$60|
|Anthony Daniels (Star Wars)||$50|
|Joel Grey (Buffy the Vampire Slayer, Warehouse 13)||$40|
|John Barrowman (Torchwood, Arrow, Doctor Who)||$40|
|Andrew McCarthy (Pretty in Pink, Weekend at Bernie’s)||$40|
|Raphael Sbarge (Once Upon a Time, Mass Effect, Star Trek: Voyager)||$30|
|Jerome Flynn (Game of Thrones, Ripper Street, Soldier Soldier)||$30|
|Gareth David-Lloyd (Torchwood, Red Faction – Origins)||$30|
|Kristin Bauer (True Blood)||$30|
|Lauren Bowles (True Blood)||$30|
|Felicia Day (The Guild, Supernatural, Eureka)||$25|
|Jason David Frank (Power Rangers)||$20|
|Veronica Taylor (Pokémon)||$10|
Now, the explanation generally given for such market behavior is that each famous person can sign a limited number of autographs and therefore sets the price of said autographs to bring this fixed supply into balance with customer demand. In this way, the price would be a reasonable proxy for popularity, as Mark states. If this is what you, too, were thinking, then I’m about to blow your mind.
When we talk about supply and demand equilibrium, it’s important to keep in mind that these models apply to what are known as competitive markets– markets where there are a lot of small buyers and sellers, and the sellers are, for the most part, all selling the same product. The Comic-Con autograph market clearly doesn’t fit within that framework, since there aren’t a whole bunch of Sly Stallones running around offering autographs and competing on price, nor is it the case that a Sly Stallone autograph is interchangeable in people’s minds with a Chloe Moretz autograph. (In case you’re curious, Chloe Moretz is 16 and most likely at Comic-Con because she is the star of the Carrie remake, though I can only picture her as Jack Donaghy’s nemesis on 30 Rock. In any case, I am willing to bet that a decent portion of Ms. Moretz’s fan base has no idea who Sylvester Stallone is.) Instead, the market for Comic-Con autographs more likely resembles what is known as monopolistic competition, where there are many buyers and sellers but the sellers’ products, while still similar, have noticeable differentiation. In these markets, each seller basically acts as his or her own little mini monopoly, since the product differentiation does in fact give the seller some market power. In other words, the sellers in these markets don’t have to just take the market price as given and can instead choose the price that maximizes their profit.
So how does a seller do this? Put simply, a seller looks at the willingness to pay (i.e. demand) of his potential customers and chooses the quantity where the incremental revenue that the last autograph brings in (i.e. marginal revenue) is equal to the incremental cost of signing that last autograph (i.e. marginal cost, in this case likely close to zero). In other words, the profit-maximizing celebrity will keep lowering the price of autographs in order to sell more autographs until the extra revenue that that brings in no longer outweighs the additional cost of signing the extra autograph. Since the incremental cost of one more autograph is basically zero, the celebrity’s profit-maximization decision becomes easier than usual, since the celebrity really only has to think about what quantity of autographs will maximize revenue. Once this quantity is established, the celebrity then just sets the autograph price at the level that will bring in the desired quantity of customers.
What this means is that it may not be profitable for a celebrity to sit around all day signing autographs or have a line of people 100 deep at all times- not because he has somewhere else to be (really, what else does Sly do with his time nowadays?), but because the price decrease required to sell more and stay busy might not be worth it. Consider the following (hypothetical) scenario:
- At a price of $395, Sly can sell 10 autographs. (I shudder to think about, in reality, how many morons spent $395 for a Stallone autograph.)
- The 11th potential Stallone autograph buyer was willing to pay a maximum of $350. Unfortunately for both Sly and this fan, it’s not really feasible to sell an autograph just to this last guy at a price of $350, since the other 10 customers would likely find out and demand a refund, and Sly would look like even more of a jerk than he already does for selling $395 autographs. (I kid about that last part- charge what the market will bear, baby, I support your bad homo-economicus self.)
It’s not worth it for Sly to reduce the price to $350 in order to sell that 11th autograph, since the $45 that he loses on each of the first 10 customers ($450 total) outweighs the $350 he could get from the 11th autograph seeker. If lowering the price a small amount brought in a bunch of new customers, on the other hand, the tradeoff would go in the other direction and Sly would have an incentive to go cheaper with the autographs.
If you’ve taken an economics course, you may have noticed that I am essentially making an argument about price elasticity of demand- if customers are very price inelastic (i.e. not very price sensitive), lowering price is going to decrease revenue, and if customers are very price elastic (i.e. price sensitive), lowering price is going to increase revenue. Therefore, it could very well be the case that, rather than Sly Stallone actually being more popular than the god that is Patrick Stewart, for example, he could have a smaller number of die-hard fans (man, I wanted to make a pun so badly there, but then I remembered that Bruce Willis and Sly Stallone are not the same person) who want Sly’s autograph so much that the price tag is most a non-issue. In fact, this scenario is entirely plausible under the assumption that Sly’s fan base is older and therefore likely has more disposable income than the fans of a lot of the younger stars. Therefore, under this market dynamic, popularity and price don’t necessarily go hand in hand, and it may be financially beneficial (though potentially not great from an ego standpoint) to appear to have fewer autograph seekers. In order to truly judge popularity, then, we would need to know not only the prices but also the quantities sold- I wonder if the Overthinking It guys can get on that.
You can consider this the economics version of the quality over quantity lesson.