When Markets Misbehave: are my cinema tickets overpriced?
A trip to my favourite Vue cinema in Fulham Broadway and I discovered a cinema ticket now costs £11.60. I reluctantly picked my seat to watch the latest Marty Supreme movie; I found myself staring at the steward in front of me questioning who in the world increased the ticket price? Two hours of feeling deflated passed before my mood lifted upon discovering Peter A. Lawrence’s $23-million book on Amazon, which explores flies. In the end the book’s price was dictated by algorithmic pricing. It turns out that two sellers were using algorithms to set their prices based on a fixed fraction of each other’s prices. One seller set their price at 0.99830 times the competitors, while the other priced theirs at 1.27059 times the first. Apparently, neither seller thought to stop the pricing, and before long, the system ran wild resulting in a final price of 23,698,655.93 USD plus 3.99 USD shipping.
On May 5, 2010, amid the flash stock market crash, CNBC’s Mad Money host Jim Cramer went live, urging viewers not to panic and to buy Procter & Gamble. Markets had declined through-out the day briefly erasing nearly $1 trillion in market value before rebounding. According to investigations by the U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission the crash was caused by a chain reaction involving algorithmic trading and market structure. It was one of the most dramatic intraday swings in market history. In the UK it was general election day, whilst in the US Wall Street was gripped by fears about the Greek debt crisis. No one had expected the near 1,000-point dive in share prices.
So perhaps I should consider myself fortunate. My overpriced cinema ticket did not require a televised rescue by a media anchor armed with dramatic sound effects and a congressional hearing. Still — £11.60 feels ambitious.
CREDITS
- Book on Amazon tops $23.6 million - UPI.com. [online] UPI. 2011. Available at: https://www.upi.com/Odd_News/2011/04/26/Book-on-Amazon-tops-236-million/94271303840708/.
- Reddit.com. Reddit - The heart of the internet. [online] (2024). Available at: https://www.reddit.com/r/investing/comments/e910r8/2010_flash_crash/.