The Economics of Street Performers

Well, I have had the ultimate travel and tourism experience by spending a few days in Las Vegas – my first time – and a place I can now best characterize as a Disneyland experience for adults. 

The state of Nevada and the desert metropolis are relatively isolated and yet Las Vegas has established itself as a large and dynamic if sinful urban centre focused around gambling and entertainment on a grand industrial scale. Las Vegas offers a unique experience.  Where else in the course of a single day can you visit massive reproductions of New York, Egypt, Paris, Rome and Venice?  And then there is the food and drink!  You know you’ve left Ontario when you see shoppers at the mall with beer and wine glass in hand walking around and chatting.  As for the food, the all you can eat buffets are astounding though you do need to pace yourself.  The high fat content of many of the buffet offerings does not always agree with your digestion and can result in what you eat in Vegas staying in Vegas.

What was also interesting from an economic perspective was the large number of street performers ranging from costumed Woody and Buzz Lightyears to multiple Elvis impersonators (The Elvi?) available to talk to you, perform for you or have their pictures snapped with you all for a tip.  They are essentially providing a service that is available for free (much like blogging I suppose) yet you may make a voluntary contribution if you wish.  In essence, this seems to be a pay want you want model for pricing and there does seem to be an emerging business literature on it.

According to Kim, Natter & Spann (2009) “Pay What You Want: A New Participative Pricing Mechanism” Journal of Marketing, Vol. 73, January, 44-58, pay what you want (PWYW) is a new participative pricing mechanism in which consumers have maximum control over the price they pay. Previous research has suggested that participative pricing increases consumers’ intent to purchase. However, sellers using PWYW face the risk that consumers will exploit their control and pay nothing at all or a price below the seller’s costs. In three field studies, the authors find that prices paid are significantly greater than zero. They analyze factors that influence prices paid and show that PWYW can even lead to an increase in seller revenues.

While this model applies to a lot of content on the internet especially in areas like the arts and music, it also seemed to characterize what was happening on the streets of Las Vegas as crowds walked by these assorted sets of performers.  Essentially, the street performer offers a performance or personal experience product (like getting your picture snapped with an Elvis or Superman impersonator) and the passing consumer accepts or rejects the product.  If the consumer accepts the product, he/she then decides on a price or tip, which the seller cannot reject.  The price may be zero or it could be some positive amount.  The amount of net revenue generated should depend on the cost of producing the service, any type of emotional bond or temporary social relationship the seller forges with the consumer that elicits payment, the consumer’s sense of fairness or obligation, the utility derived by the consumer from the service and of course the volume of activity in terms of the number of passersby.

Entry to this activity seems to have a very low marginal cost – simply a costume or some other type of gimmick.  I’m not aware if the performers needed a license of some type.  I suppose an economically rational consumer would enjoy the product and pay zero and yet this is obviously not always the case.  Enough people tip something to make the activity profitable enough on the part of the sellers  - otherwise, they would not be there.  Either a sense of fairness, altruism or perhaps genuine satisfaction with the product or service provided seems to ensure that some payment occurs.

Indeed, Kim et. Al., in their paper conduct three field/empirical studies for cases of PWYW for restaurant buffet lunches, cinema tickets and hot beverages and found that prices paid differed significantly from zero.  They found that in general the final prices paid were driven by what consumers believe is fair, their product satisfaction, price consciousness and net income.  However, they argue that their findings show that consumers do not behave as rational as traditional economy theory suggests.  I’m not sure I would agree given that in the end consumers would pay what they feel the product is worth to them.  Those that derive higher values pay more.

In the case of Las Vegas street performers, I would add another variable – decreased price sensitivity due to the consumption of alcohol.  There were a lot of very relaxed people, drinks in hand, walking around and chatting with street performers as if they were long lost family.  I would say all of this strikes me as yet another example of the immeasurable majesty of human economic behavior.

Comments

[Determinant]

Las Vegas does specialize in providing an experience where the rules in most other states/provinces are suspended or heavily modified. Gambling is one (less so now than previously),alcohol is still a point of different and prostitution is legal in Nevada though not in Las Vegas city limits nor in Clark County.

There is the fascinating observation that casinos don't really compete on the gambling itself, blackjack is blackjack (it does happen but the effect is less than expected). They compete on the 'comps' or out-of-casino experience. Do I want an Italian-American themed buffet or a classic French one? In other words they compete on the personality behind the casino.

Closer to home, my United Church congregation in rural Central Ontario runs several dinners and events based on the concept of "free-will offering" and it always covers costs and nets us a return. When the Annual Congregational Meeting comes around the standing arrangement is that the Church Council provides dessert, there is a free-will offering for the main course which is always sufficiently decent to attract a crowd and a quorum. In the United Church's Presbyterian/Congregationalist polity quorum and consultation matter.

[Jacques René Giguère]

I was in Montréal last week, on a heavy schedule of meetings, so not much commenting but an interesting experience.
Guy-Concordia University Metro station: a busker at the official busker site ( I don't know about other subway systems but Montréal has designated places in each station for buskers). He had set up his gear plus a cardboard stand with a reprint of newspaper critics:"Best busker in Montréal". He was very good and I paid to listen, Did the publicity increased the number of customers and/or the amount?
On the other hand, an experiment in Washington ( don't recall the exaxct cite) showed that people were unable to distinguis between an ordinary busker and a player from the Washington Synmphiny. Are the buskers that good and are the unlucky one in the tournamant or is thwere a perception bias? Enquiring minds want to know.

[Costard]

Indeed some of the pedicabs in the city in which I live don't charge a fair. Customers pay what they want, and from what I've heard they generally pay well. Though there are no contractual reasons to pay for the ride, there are still social reasons that make payment rational: impressing your date, keeping the driver happy, satisfying personal notions of pride and responsibility. Friendly drivers consequently do much better, and for that reason pedicabbing tends to attract a more gregarious sort of folk than do the municipal cab services.

I've busked on occasion. The success of the venture depends upon the setting. Some cities have a culture of live music, in which case people are accustomed to tip. And unfortunately some do not. Busking at 8am or 5pm on a weekday - a la the Joshua Bell/DC subway experiment - is a horrible idea. People are preoccupied and in a rush. Lunchtime, or the weekend, would go much better. Your audience needs to be at leisure -- but not so much at leisure that they will be upset by your intrusion (ie the beach).

The reward is a sort of idealized transaction. Once you've acquired a crowd, there's no haggling or underhandedness, no dishonesty or mistrust. The social nature of commerce comes out; everyone walks away happier.

[Frances Woolley]

Jacques Rene - Here's the youtube video of the subway experiment you're thinking about (sorry, there's an ad first). It's amazing...

[Mandos]

This is particularly relevant in the context of media piracy. It happens that people are willing to pay money, and sometimes nontrivial amounts, when the provider offers it under terms that that the consumer considers to be fair. This is why the whole agency pricing book thing is a case of the publishing industry shooting itself in the foot; it makes the whole thing look unfair, and lowers the moral barrier to book piracy.

[Ralph Musgrave]

Another way in which street performers illustrate the laws of economics: I've been told that the more profitable locations for street performers in Londong are controlled by gangs. You try street performing near Picadilly Circus in London and asking for money and without paying - er - "rent" to the appropriate gang, and a couple of heavies will come and move you along.