Sunday, March 18, 2007

Karaoke Queuing

Rationing by price is usually more efficient than rationing by queuing, so there’s always an economic puzzle to be solved when queuing is employed in voluntary markets (as opposed to contexts in which pricing is banned or controlled, such as organ donation or rent-controlled housing). Why, for instance, do nightclubs and restaurants choose to make people wait outside, rather than hiking their cover charges or prices for food and drink?

Economists have proposed a number of answers to the nightclub/restaurant puzzle, but I’ve lately been pondering a different puzzle: karaoke queues. At karaoke venues, the number of people who want to sing is almost invariably larger – sometimes much larger – than the number of singers who can be squeezed into the available time. It would obviously be possible for karaoke hosts to charge a price-per-song large enough to reduce the number of willing singers to the number of available slots. (Indeed, profit maximization might even dictate having fewer singers than available slots.) But karaoke venues almost universally set a price of zero and ration by waiting instead. I’ve only encountered one karaoke venue that had a non-zero price, and even that price was far too low to balance quantity demanded and quantity supplied. What gives?

The obvious answer is that there really are prices; we call them bribes. Anyone who’s done much karaoke knows that most hosts will bump you up the queue if you give them extra-large tips. At some places, your chances of singing if you don’t bribe the host are pretty slim. But why the subterfuge? Why not simply set one price for everyone? The bribery system has a variety of problems, most notably its uncertainty: it’s not always clear whether this particular host takes bribes, how much you need to pay, what you’re really paying for (singing sooner or singing at all?), and so on. I’ve gotten burned by this system myself, when I’ve given “tips” and only found out later that this host sticks to the established queue.

So I have two hypotheses:

1. The absence of prices results from the contract between karaoke host and venue management. The management pays the host a flat fee for the night (this is fact, not speculation) and specifies a price of zero. But why would the management do that? Because the venue makes most of its money from booze, and booze sales are maximized when you have a large number of people waiting around in the hope of getting their chance to sing. I know there are many times when I’ve considered going elsewhere (home or another bar), but I’ve stuck around with the sometimes-mistaken impression that I’ll be singing soon. So the management insists on a zero price to keep as many people hanging around and drinking for as long as possible. This hypothesis is consistent with the common practice of keeping the queue secret instead of letting everyone know where they stand. If the list were public, many people might realize they’re too far down the list and choose to leave.

2. The bribery system facilitates a clever system of price discrimination. Lots of people want to sing, but only a fraction want it enough to pay a bribe. Say you have 50 available slots and 100 people who want to sing. A price of $2/song might reduce the number of willing singers to 50, yielding $100 of revenue. But if you keep the queue in place, the 10 or 20 most motivated singers (who would only have paid $2 like everyone else) will cough up $10 each, yielding revenues at least as high and probably higher than under the pricing scheme. But why not charge everyone $2 each and charge the most motivated singers more? Because then the motivated singers would only be paying for the privilege of singing sooner, rather than singing at all, and they won’t pay as much for that. The bribery system does a better job of sorting the motivated from the unmotivated singers.

These two explanations are not mutually exclusive, but there is a tension between them. If the management is trying to maximize the number of drinking patrons by keeping the price per song at zero, bribery partially thwarts the goal. Motivated singers who pay to sing might leave shortly thereafter, and if other patrons realize they’re being pushed down the list by bribery, they might opt out as well. There may be a kind of principal-agent problem at work: the karaoke host (agent) has incentives that run counter to those of the management (principal), and bribery is a form of shirking. The need to conceal the shirking helps explain why karaoke hosts choose to keep bribery on the down-low while maintaining a secret queue. Still, given that most karaoke patrons know that bribery goes on, it’s hard to believe the management is oblivious. It’s more likely, I think, that the management considers the bribery a portion of the host’s compensation, provided the practice is not so obvious that it drives customers away. This enables the management to pay a smaller flat fee to the host, in essence taking a cut of the bribe revenue. Thus, the current arrangement might in fact constitute an optimal contract between management and karaoke host.

3 comments:

Larry said...

As a former karaoke host for about 4 years, I feel that I have the experience to assert an informed comment.

Your piece is well thought out, however it is based on a single premise: the belief that there are more singers than time allotted.
Personally, I have not worked a night where this was the case, and rarely whilst as a patron of karaoke. The handful of times I have witnessed such a thing, it occurred on a weekend night.

With that being said, I have an hypothesis of my own:

Singer #1 - One who places a high value on being behind the mic, whether it's the quickness to be called up to sing or the frequency of such. This person logically would seek the venue where 'mic-time' is increasingly likely to occur.

Singer #2 - One who does not place as high a value on mic-time and conversely patronizes a venue where mic-time is limited. These types of singers also enjoy places of limited mic-time for it's ego-stroking factor. Being in front of a crowd is more important than mic-time.

It's as simple as that. If you want to sing a lot, then choose a less crowded venue. If you want to stroke your ego, then go to a crowded venue. You are going to spend money either way, it's just a matter of degree.

I must take some issue with your assumption that all tips given to the host are 'bribes'. What you describe did happen to me as well, however those type of tips comprised about 15% of the night's haul. The majority came from satisfied singers because I mixed them well through the mains. Singers really like to be heard well and to sound pleasing to themselves. It was my attempt to put on a good show, keep the customers happy and keep the singers coming back. The bar owner liked it too. I was compensated well.

So it can be argued that you are describing a phenomenon confined to particular nights of the week, a Friday or Saturday night perhaps. And I know that one can chime in and say "well that's when most people go out to sing."
IMHO, consensus based arguments are spurious.
To your credit though, the hypotheses that are posited within the piece itself are spot on.

Glen Whitman said...

Larry -- thanks for your comments. I'm wondering what part of the country you did your karaoke hosting in, because apparently the L.A. scene is different. Here, you basically can't find a good karaoke night on Friday or Saturday (except for the places that do it every night), because managers know their bars will fill up without the extra entertainment. It's the other days of the week, especially Sunday, that are most popular for karaoke -- and I can guarantee that the length of the queue almost always exceeds the time available, at least at the popular places.

I agree that your two types of singers exist, but I'm not sure they're distinct. People who want the ego-boost of performing to a large crowd often also want the ego-boost of singing more often. The bigger the crowd, the more often they'd like to sing.

In any case, both groups probably fall in the "highly motivated to sing" category that I talked about. Both can be distinguished from the casual attendees who are okay with not singing at all.

With regard to "bribes," I don't intend that terminology to be derogatory. It's purely descriptive: unofficial payments for better treatment. To an economist, a bribe is just another kind of price (albeit one with some unusual features, such as the need for subtlety). If I were a KJ, I would totally take bribes, and I'd do so without shame.

And I didn't mean to imply that such bribes are the only revenue source -- just one important part of the overall compensation. I'll bet that the bribes are a lot more than 15% of revenues in the places I go to. In fact, one place I've found actually makes the bribes explicit (admittedly, this is a very unusual practice). They don't have a tip jar at all. Instead, they have a sign-up list with a special section labeled "Bribery, pure and simple." If you pay $20 to put your name in that section, you can tell the host when you want to sing and he'll put you up immediately.

Larry said...

You are correct in equating the two types of singers as being motivated. I pondered this after posting and kicked myself for not drawing the comparison before hitting enter.
I started in Boise on Sunday nights, then I switched to Wednesdays. Then about a year in Tucson on Monday nights. I now reside in Phoenix and rarely sing anymore, perhaps once a month? I have always been a weekend worker-bee and rarely can I muster a social scene outside of midweek. So, yes, our respective experiences are markedly different. Perhaps the geographic differences in karaoke queuing is worthy of a casual scrutinization. Or not.

I think we can concur that karaoke is a strange animal indeed. For my part, if it starts to look like hard work in any situational context, I'm outta there. I detest crowds. That would explain a lot.
As a KJ, I did take the monies you mentioned. However I have altruistically chosen to file these under other headings. You describe a dynamic that encompasses the entire bar-owning business with specific regard to karaoke nights. Anyone who pays 20 bucks to sing quick is no one I want to hang around, and any show that condones or promotes such a thing is not where I will be -- casual attendee or otherwise.

Please keep up the wonderful insights that draw from everyday life, you give blogging a legitimacy that I surely cannot. I applaud you sir.