The Hidden Markets Shaping Modern Life

“Today, the concert ticket industry is broken,” a government attorney told jurors at a civil antitrust trial in early March. Ticketmaster and its parent, Live Nation Entertainment, have monopolized the market, the Department of Justice argued, driving up prices for everyone.

But beyond the antitrust issues, a different dynamic is at play: a market being hidden. When demand overwhelms supply, prices are artificially low, and allocation happens “offscreen,” a system economist Judd Kessler calls a “hidden market.” These markets increasingly dictate access to coveted experiences – from restaurant reservations and concert tickets to theme park rides and even job interviews.

Understanding Hidden Markets

Judd Kessler, a Wharton professor and author of Lucky by Design, argues that these hidden markets arise when the price of a scarce item is set below what the market would naturally bear. Instead of disappearing, the scarcity shifts into queues, lotteries, intermediaries, and perks – effectively becoming hidden. Someone, inevitably, profits from this friction.

Kessler’s core diagnosis is simple: “The reason it’s a hidden market is because there is excess demand given the price that is being charged.”

The Discomfort with Pure Price Allocation

At the heart of hidden markets lies a collective discomfort with allocating resources solely based on price. People resist a system where access to events or restaurants is determined purely by wealth. This leads to maintaining face value prices while other mechanisms determine who actually gains access.

As Kessler explains, “If we do allocations by prices, the allocation of any scarce resource gets distributed based on the inequalities in wealth and income.” He notes that even the idea of Taylor Swift selling tickets for $3,000 each, while theoretically justified by the secondary market, would be perceived negatively.

The Role of Perks and Intermediaries

While direct resale is often frowned upon, benefits offered to certain groups – like early reservations for American Express Platinum cardholders – are often accepted. Kessler points out this seeming contradiction: “Somehow, we’ll give the folks who are willing to pay over here for the Amex, we’ll give them the early reservations. And that’s how we’ll solve this problem … no one seems to complain about that.”

Benjamin Shiller of Brandeis University has researched “personalized pricing” and notes a trend toward companies hiding how they personalize prices, often through coupons. He also observes that digital distribution allows sellers to restrict resale, increasing profitability. Resale markets tend to disappear in these scenarios, remaining “more hidden rather than acknowledged.”

Disney’s Hidden Market Flywheel

Disney World exemplifies the complexities of hidden markets. While standard tickets are available, a tiered system of options – including lightning lane passes to skip lines and meal prepayments – monetizes scarcity within the park. Kessler argues these are standard price discrimination strategies, but the ability to pay extra for benefits creates a hidden market within the park experience.

Brett Schneider, a marketing veteran, cautions that this “gatekeeping” risks alienating true fans. He suggests gamified systems that reward genuine loyalty with access to experiences, rather than simply catering to the wealthiest customers.

Disney’s recent focus on theme park revenue, accounting for roughly 70% of operating profit, has raised concerns about over-monetization. While the company acknowledges the necessitate to be “smart about pricing,” especially for lower-income families, the parks remain a crucial component of Disney’s overall business strategy.

Playing the Hidden Market Game

Kessler advocates for understanding the rules of these hidden markets and playing them strategically. He illustrates this with his attempt to book The French Laundry, advising to “settle for silver” – targeting less popular options to increase the odds of success. In high-demand, first-reach, first-served scenarios, focusing on the top choice guarantees failure, while less sought-after options remain attainable.

The Taylor Swift Example Revisited

Kessler explains that the true value of a Taylor Swift ticket, as indicated by the secondary market, is around $3,000. However, Ticketmaster sells a limited number of tickets at a lower price, leading to bot activity and resale markups. Ticketmaster receives money back when sales happen on the secondary platform, allowing the artist to realize the full value while shifting blame to resellers.

Kessler concludes, “It basically at the end all comes down to this mispricing. People are trying to take advantage of the mispricing.” And in hidden markets, he added, things are “100% mispriced.”

understanding these hidden markets is crucial for navigating modern life, where supply and demand often clash with our desire for fairness and equitable access.