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The Economics Behind Fyre Festival

By Valdy Wiratama The Jakarta Post, Indonesia / Asia News Network

WWR Article Summary (tl;dr) Dueling documentaries are airing right now on Hulu and Netflix focusing on the debacle that was the "Fyre Festival." For some, the time is ripe to reflect on what happened and what went so terribly wrong.

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Music festivals have experienced quite the growth in recent years. In the United States alone, 32 million people go to at least one music festival every year. Out of that number, Nielsen Music reported in 2014 that 14.7 million attendees were millennials.

It is no surprise then that many aspiring entrepreneurs begin to penetrate the market, including Fyre Media founder Billy McFarland.

Billy McFarland conceived the 2017 Fyre Festival as a two-weekend musical experience in the Bahamas. It was marketed to millennials, involving supermodels like Bella Hadid and more than 250 influencers in its promotional materials. The concept seemed promising on paper, but it quickly backfired when ticket holders got a taste of its false advertising.

The first batch of festival attendees was greeted upon arrival with refugee tents and unfinished construction.

Furious, they quickly documented the on-site conditions and posted it on social media. The internet responded, and now, after watching the festival unfold as a joke for over a year, streaming services are beginning to release their own findings on what went wrong.

Hulu was the first streaming giant to expose Fyre Festival by releasing Fyre Fraud. The documentary takes a more comedic approach to the conceptual framework of FOMO.

The acronym, which stands for 'fear of missing out,' has become a frequent use amongst millennials to describe one's underlying anxiety against social engagement. Experts argue that social media creates this paradigm of following the hype, which could have a dampening impact on one's identity.

"[With social media] you see what everyone else is doing. The fact that you're not there creates this fear that you are less of an individual," says one of the early skeptics of Fyre Festival, Calvin Wells.

Billy McFarland understood this and decided to operate on the basis of FOMO. He would go to great lengths to maintain the hype and drain all his early resources to avoid any kind of bad press. However, when his plans went awry, he began to commit all kinds of manipulation, including selling a ticket package for $250,000.

In the eyes of the law, what McFarland essentially pulled off is fraud. However, from a microeconomic lens, he simply succeeded in manipulating the theory of asymmetric information.

Asymmetric information is a concept left undiscussed in the documentary, in which a buyer and a seller possess different information regarding a transaction. Most economists would illustrate it through the market for used cars. The common consensus is that the market for used cars uses highly intelligent selling techniques to exploit people's perception. In order to gain profitable returns, they would probably withhold certain information, such as bad repair records, to boost the profit from lower quality cars during early transactions.

"[McFarland] is like the ultimate used car salesman. And he really wanted to sell you a car," comments reporter Polly Mosendz on the documentary, and she is not wrong.

Through market signaling, McFarland and his team were able to play upon public perception. Instead of conveying the truth about the struggling setups, they withheld information by filtering negative words on Instagram's comment section and committing payment fraud to "secure" musical acts. As a consequence of these unobserved actions, the public was given a false signal on the probability that it would succeed -- a concept of moral hazard in economic terms.

There is no shortage of lessons from Fyre Festival, and Netflix's version proves this by triggering another economic discussion. Fyre: The Greatest Party that Never Happened highlights the socioeconomic impact on the employees involved, particularly on the local Bahamians.

There were hundreds of day laborers working around the clock and a quarter of a million dollars are still owed to them.

The amount of debt owed in day wages could be attributed to the organizing committee's role as a monopsonist. To the local Bahamians, the development of Fyre Festival, which involved the construction of hundreds of villas and other buildings, seemed like a good way to boost the local economy. At the time, Billy McFarland was the only businessman who was truly interested in creating something productive out of the Bahamian community. He was a single buyer for the local employment market.

Once McFarland becomes in charge of the local employment, he began to abuse his monopsony power. The power itself enables McFarland to compensate the day laborers for less than the wage that would prevail in a competitive market. Not only did he manage to execute this, but he also failed to fulfill his promise of delivering full payment. Maryann Rolle, the local restaurant owner hired for catering, even ended up pulling $50,000 from her personal savings to compensate her workers.

"Personally, I don't even like to talk about the Fyre Festival. Just take it away and just let me start a new beginning, cause they really hurt me," grieves Rolle.

In retrospect, one should also look at the dueling documentaries on Fyre Festival as a revelation of our inner impulsivity. Our need to belong is sometimes confused by certain tactics on information dissemination. It is not that millennials, or any other generation, should abandon highly-marketed festivals, but one could argue that they should prioritize their spending allocation for consumption that gives the highest internal satisfaction. If the purpose is to flex on social media, then one might want to reconsider the value that it yields.

It seems easy to solely blame Billy McFarland, but the tragedy of Fyre Festival would not even have happened without the contribution of internet users. After all, citizens of the net are part of the economic agent that disseminates information into popular territory without second-guessing. In the words of the Hulu documentary: "Who's guilty? Everyone."

(The writer is a research assistant based in Jakarta and a socioeconomic behavior enthusiast. When he's not assisting projects or tutoring at the University of Indonesia, he likes to catch up on the latest global news, analyze movies, read about indie culture and write social commentaries.)

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