Oasis fans are angry but dynamic pricing benefits consumers too | Larry Elliott

Fans of Oasis received a lesson in how capitalism works when the first tickets for the band’s reunion concerts went on sale. People queued for hours only to find that the price had rocketed from what they imagined would be £148.50 to £355.20 by the time it came to pay.

This was due to dynamic pricing , under which businesses adjust their prices flexibly based on current market conditions. Airlines, hotels and taxi companies all use this model.

An investigation into how dynamic pricing was used to allocate tickets for the Oasis gigs has now been launched by the Competition and Markets Authority. Lisa Nandy, the culture secretary, has called the high prices charged to see the Gallagher brothers play together for the first time in 16 years “incredibly depressing”. Dynamic pricing, or surge pricing as it is also known, is to be included in government review of the ticket resale market.

Yet disgruntled Oasis fans expecting their less-than-happy experience to lead to a ban on dynamic pricing are likely to be disappointed. That’s not because there are no questions for Ticketmaster – one of the official ticketing partners for the concerts – to answer, because there clearly are.

Quite rightly, the CMA is looking at whether Ticketmaster engaged in “unfair commercial practices”, and in particular whether fans were given “clear and timely” information that dynamic pricing was being used. That does not seem to have been the case and it meant that, after patiently waiting for hours in the queue, people were then given seconds to decide whether to buy tickets or not. This cannot possibly be right and in future it should be clear from the outset that ticket prices might well rise, and rise very sharply, during the buying process. At the very least, that would have meant that those unwilling to pay more than £350 for a ticket would not have wasted their time queueing.

The fact is, though, that whether dynamic pricing was used or not many fans would have ended up disappointed. That’s because demand for the concerts was higher than the supply of tickets. Oasis have a large and loyal fanbase. The band has not played together since 2009. Given the often difficult relationship between Liam and Noel there has to be a risk that next year’s concerts will never be repeated. Demand was always going to massive.

On the other hand, supply was limited by the number of concerts the band had agreed to play. Two more have been added as a result of last week’s furore but even so there were never going to be enough tickets for everyone. One of the first things any A-level economics student is taught is that prices are set by the interplay of demand and supply. If demand exceeds supply one of two things happens: either supply goes up or prices rise.

This is true not just of the market for concert tickets. When Liverpool and Spurs both qualified for the 2019 Champions League final in Madrid, fans of the two teams found that as a result of dynamic pricing the cost of a limited number of flights to the Spanish capital rocketed instantly. For me, a Spurs fan on the wrong end of a 2-0 scoreline , it proved to be both a disappointing and expensive couple of days in Spain.

House prices are not subject to dynamic pricing but the property market exhibits the same supply and demand dynamics. Periods of falling prices are rare because a rising population and a tax system that favours owner-occupation boost demand while supply is restricted because the UK is a relatively small country with strict planning laws. Labour’s answer to the lack of affordable housing is to liberalise planning rules and thereby boost supply.

In all three of these examples – Oasis tickets, flights abroad and housing – the price mechanism operates to bring demand and supply into balance. It is an effective if brutal way of coping with scarcity.

There are other options, which are all forms of rationing. In the days before the internet and dynamic pricing, those wanting tickets for concerts or big sporting occasions had to be prepared to queue overnight to be sure of getting a seat. All the tickets for the Oasis concerts could have been allocated by lottery. The limited number of tickets allocated to away fans in the Premier League tend to go to those who have accumulated sufficient loyalty points by previously attending games.

The reality is that some people who want to go Oasis concerts are going to be lose out, either because they are excluded by price or by some other method.

Dynamic pricing means companies can maximise their profits by filling seats on planes or increasing occupancy of hotel rooms when demand is weak. The fact that there are also consumer benefits from allowing market forces to operate – cut-price air fares and cheaper midweek hotel stays – will not be lost on ministers. There is not the remotest prospect of it being outlawed.

But as Lynda Clarke, chief operating officer at the fintech company Tribe Payments points out, companies using dynamic pricing have to be transparent and not treat their customers like mugs. “If you push it too far and consumers feel like they’re just cash cows, they’ll likely turn on you,” she says.

“Trust is the most important element of a merchant-consumer relationship. The real challenge for businesses is balancing the motive of profits with the need to keep customers happy. After all, once you lose their trust, it’s hard to win it back.”

In other words, telling Oasis fans that they just have to suck it up because that’s the way capitalism works is not good business any way you look at it.