Undercutting vs. Underbidding – The Performer's Guide

In the entertainment industry, the terms “undercutting” and “underbidding” refer to strategies used by performers and entertainment companies to secure gigs and contracts, but they operate in different ways and have distinct implications.

Undercutting involves offering services at a significantly lower price than the prevailing market rate. This strategy can attract more bookings in the short term but often at the expense of industry standards and the overall value of the services offered. Undercutting can lead to a race to the bottom, where prices are driven so low that it becomes unsustainable for performers to maintain their quality and livelihoods. This practice can undermine the market, devalue the profession, and lead to long-term negative consequences for the entire industry.

Underbidding, on the other hand, typically occurs in competitive bidding scenarios where multiple performers or companies submit proposals to win a contract or gig. While underbidding also involves offering a lower price, it is usually more strategic and considered. Performers might lower their bids to a reasonable extent to secure a job, but they generally strive to balance cost-cutting with maintaining quality and professionalism. Underbidding can be part of a healthy competitive process, provided it doesn’t excessively drive down prices or compromise the quality of the performance.

Understanding the distinction between undercutting and underbidding is crucial for maintaining a fair and sustainable entertainment industry. Performers need to navigate these strategies carefully to ensure they remain competitive while preserving the value and integrity of their work.

Industry Standards:

Performers talking about being undercut by a competitor and asking other performers within the field to stay within the industry standard What is an industry standard and how do you stay within it? Industry Standards are a set of criteria within an industry relating to the standard functioning and carrying out production operations. it is the generally accepted requirements followed by the members of an industry.

Industry Standards are voluntary documents that set out specifications, procedures and guidelines. Industry Standards aim to ensure products and services are

Safe
Consistent
Reliable

However, industry standards do not include undercutting specifically.

Undercutting is the act of offering services at a lower price than a competitor by INTENTIONALLY cutting or slashing prices.
Underbidding is the act of, when seeking a contract, makING an UNINTENTIONALLY lower bid than a competitor.

Undercutting in the Entertainment industry:

In the entertainment industry, undercutting typically refers to a practice where individuals or companies offer their services or products at a significantly lower price than their competitors. This can occur in various areas of the industry, including film, television, music, theater, and other forms of entertainment.

Here are a few specific examples of undercutting in the entertainment industry:

Ticket prices: In the theater or concert industry, undercutting may involve offering tickets at a lower price than the standard market rate. This could be done by a competitor or even by scalpers looking to sell tickets at a lower cost to attract buyers.
Production costs: In the film or television industry, undercutting can occur when a production company or crew offers their services at a lower rate than the prevailing industry standards. This could be done to secure work or gain a competitive advantage.
Artist fees: In the entertainment industry, undercutting can occur when an artist or band agrees to perform at a significantly lower fee than their usual rate. This can happen due to various reasons, such as gaining exposure or securing a specific opportunity.

It’s worth noting that undercutting in the entertainment industry can have both positive and negative implications. While it can provide more affordable options for consumers and promote competition, it can also lead to lower quality, exploitation, or financial instability for those involved.

Potential Benefits of Undercutting:

Undercutting in the entertainment industry can have certain potential benefits, although it’s important to consider the broader implications and potential drawbacks as well. Here are some potential benefits associated with undercutting:

Increased affordability: Undercutting can make entertainment products or services more accessible to a wider audience by offering lower prices. This can attract individuals who may have otherwise been unable or unwilling to pay higher prices, thus expanding the consumer base.
Competitive advantage: By offering lower prices, undercutting can give individuals or companies a competitive edge in the market. This can help them attract customers, gain market share, and establish themselves as viable alternatives to higher-priced competitors.
Market disruption: Undercutting can disrupt established market dynamics and challenge dominant players. It can introduce new ideas, approaches, or business models that provide innovative solutions and force incumbents to adapt or adjust their pricing strategies.
Exposure and promotion: Artists or entertainers who choose to undercut their usual fees or pricing may gain exposure to new audiences or markets. This exposure can potentially lead to increased visibility, recognition, and opportunities for future growth.
Consumer choice: Undercutting expands the range of options available to consumers, allowing them to choose from a wider variety of products or services at different price points. This empowers consumers with more choices and the ability to select options that best suit their preferences and budgets.

It’s important to note that while these benefits may exist, undercutting can also have negative consequences, such as devaluing the industry, creating unsustainable financial models, or exploiting labor. Balancing affordability with fair compensation and maintaining industry standards is crucial to ensure a healthy and sustainable entertainment industry ecosystem.

Potential Downfalls of Undercutting:

Undercutting in the entertainment industry can have several negative effects. Here are some potential negative consequences associated with undercutting:

Quality compromise: Lower prices resulting from undercutting may lead to a compromise in the quality of the entertainment products or services offered. This could include reduced production values, talent, or resources allocated to the project, ultimately impacting the overall experience for the audience.
Financial instability: Undercutting can create an unsustainable business model, especially for smaller companies or individuals. When prices are driven down, it can become difficult to cover production costs, pay fair wages to artists and staff, or invest in future projects. This can lead to financial instability and even business closures.
Exploitation of labor: Undercutting may result in artists, crew members, or other industry professionals being underpaid for their work. In an attempt to secure jobs or opportunities, individuals may accept lower wages than they deserve or work under unfavorable conditions, leading to the exploitation of labor.
Industry devaluation: Constant undercutting can devalue the entertainment industry as a whole. When prices are consistently driven down, it can create a perception that entertainment is cheap or disposable, diminishing the perceived worth and importance of the industry and its professionals.
Lack of diversity and innovation: Undercutting can deter artists or creators from taking risks, exploring new ideas, or pursuing innovative projects. When financial pressures increase due to lower prices, there may be a tendency to rely on established formulas or mainstream content, limiting the diversity and creativity of the entertainment offerings.
Negative impact on established professionals: Undercutting can adversely affect established professionals in the industry. When newcomers or lower-priced competitors enter the market, it may lead to established professionals losing work opportunities, income, or recognition, which can create financial and emotional hardships.

It’s important to strike a balance between affordability and maintaining fair compensation, quality standards, and a sustainable industry ecosystem.

Under Bidding in the Entertainment Industry:

In the entertainment industry, underbidding refers to a practice where individuals or companies submit a bid or proposal for a project at a significantly lower price than their competitors. This typically occurs in situations where multiple entities are vying for the same project or contract, such as providing services for a film production, concert, or event. Underbidding involves offering a price that is below the prevailing market rates or below the actual cost of providing the required services. The goal of underbidding is usually to secure the project or contract by offering a more attractive financial proposition to the client or employer.

Here are a few key points about underbidding in the entertainment industry:

Competitive advantage: Underbidding is aimed at gaining a competitive advantage over other bidders by offering a lower price. It can make the bid more appealing to the client, as it potentially reduces costs and may provide budgetary advantages.
Cost-cutting measures: Underbidding often involves cutting costs in various aspects of the project. This can include reducing fees for performers, crew members, equipment rentals, or production expenses. It may also involve making compromises in quality or scope to meet the lower price point.
Risk of financial strain: Underbidding carries the risk of financial strain for the bidder. By offering a significantly lower price, the bidder may face challenges in covering the actual costs of the project or generating a reasonable profit. This can lead to financial difficulties or compromises in the delivery of the services.
Impact on industry standards: Underbidding can have a broader impact on industry standards and expectations. If underbidding becomes prevalent, it can potentially drive down market rates and devalue the work of professionals in the industry. This can create a challenging environment for sustainable growth and fair compensation.

It’s important to note that underbidding, similar to undercutting, can have both positive and negative consequences. While it may provide short-term advantages in securing contracts, it can also lead to compromises in quality, financial instability, and long-term negative effects on the industry ecosystem.

Federal Trade Commission:

The FTC is primarily concerned with preventing anticompetitive practices and ensuring fair competition in the marketplace. While undercutting itself is not inherently illegal or anticompetitive, the FTC closely monitors business practices to ensure they do not violate antitrust laws or engage in anticompetitive behavior.

If undercutting is done with the intention of eliminating competition, driving out rivals, or creating a monopoly, it could raise concerns from the FTC. The FTC may investigate such practices to determine if they violate antitrust laws, harm consumers, or stifle competition in the market.

To obtain the most accurate and up-to-date information on the FTC’s stance on undercutting, I recommend visiting the official FTC website or referring to their latest publications, guidelines, or enforcement actions related to antitrust and competition. Below are questions directly from the FTC website.

⁉️ Does Undercutting go against industry standards?

NO! According to the Federal Trade Commission “Pricing below a competitor’s costs occurs in many competitive markets and generally does not violate the antitrust laws. Sometimes the low-pricing firm is simply more efficient. Pricing below your own costs is also not a violation of the law unless it is part of a strategy to eliminate competitors, and when that strategy has a dangerous probability of creating a monopoly for the discounting firm so that it can raise prices far into the future and recoup its losses. In markets with a large number of sellers, it is unlikely that one company could price below cost long enough to drive out a significant number of rivals and attain a dominant position.”

⁉️ Can prices ever be “too low”?

According to the Federal Trade Commission “The short answer is yes, but not very often. Generally, low prices benefit consumers. Consumers are harmed only if below-cost pricing allows a dominant competitor to knock its rivals out of the market and then raise prices to above-market levels for a substantial time.

⁉️ Does undercutting hurt the market?

According to the Federal Trade Commission “A business independent decision to reduce prices to a level below its own costs does not necessarily injure competition, and, in fact, may simply reflect particularly vigorous competition. Example of a large company using low prices to drive smaller competitors out of the market in hopes of raising prices after they leave are rare.

⁉️ Does Undercutting hurt the business owner?

According to the Federal Trade Commission “This strategy can only be successful if the short-run losses from pricing below cost will be made up for by much higher prices over a longer period of time after competitors leave the market. Although the Federal Trade Commission examines claims of predatory pricing carefully, courts, including the Supreme Court, have been skeptical of such claims.”

‼️ What people are actually asking for is Price Fixing.

“Price Fixing is the act of the maintaining of prices at a certain level by agreement between competing sellers and is actually illegal. In the United States, price fixing can be prosecuted as a criminal federal offense under” Section 1 of the Sherman Antitrust Act. According to the Federal Trade Commission, “Price Fixing” is an agreement (written, verbal, or inferred from conduct) among competitors that raises, lowers, or stabilizes prices or competitive terms.

Price Fixing in the Entertainment Industry:

Price fixing is an anti-competitive practice where two or more companies or entities collude to set and maintain prices at a fixed or agreed-upon level, rather than allowing market forces to determine prices. It involves an agreement among the involved parties to manipulate prices, typically by either setting a minimum price floor or a maximum price ceiling.

Price fixing is generally considered illegal in many countries, as it restricts competition, harms consumers, and distorts the free market. It undermines the principles of supply and demand, and prevents prices from adjusting based on factors such as production costs, market conditions, and consumer preferences. Price fixing can occur in various industries, including the entertainment industry, and can take different forms:

Horizontal price fixing: This occurs when competitors at the same level of the supply chain agree to fix prices. For example, two rival production companies in the entertainment industry may collude to set a fixed price for their services, thereby eliminating price competition between them.
Vertical price fixing: This involves an agreement between entities operating at different levels of the supply chain, such as a manufacturer and a retailer. In the entertainment industry, this could occur when a production company and a distributor collaborate to set a fixed price for the distribution of a film or music album.
Resale price maintenance: This occurs when a manufacturer or producer sets a minimum resale price for its products, effectively dictating the price at which retailers or distributors can sell those products. It limits price competition among retailers and can lead to higher consumer prices.

Price fixing schemes are typically secretive and can involve various methods of communication, such as direct agreements, informal discussions, or even code words and signals to conceal the collusion. When discovered, price fixing can result in legal consequences, including fines, lawsuits, and reputational damage for the involved parties. It’s important to note that price fixing is distinct from legitimate pricing strategies, such as competitive pricing, where prices are determined independently based on market dynamics and fair competition. Price fixing can have several effects on various aspects of the market and consumer experience.

Here are some ways in which price fixing can impact different elements:

Prices: Price fixing eliminates or restricts competition, resulting in artificially inflated prices. Consumers are likely to pay higher prices than they would in a competitive market where prices are determined by supply and demand.
Shipping fees: Price fixing can extend beyond product prices and affect associated costs such as shipping fees. Colluding entities may agree to maintain or increase shipping fees, limiting the potential for competitive pricing in the delivery of goods or services.
Warranties: Price fixing can influence warranties by restricting competition and limiting consumer options. Colluding companies may agree to offer similar warranties or reduce the coverage provided, depriving consumers of diverse warranty options or diminishing their overall value.
Discount programs: Price fixing can undermine discount programs by preventing or restricting price reductions. Colluding entities may agree to maintain fixed prices, limiting the ability of retailers or service providers to offer discounts or promotional offers to consumers.
Financing rates: Price fixing can impact financing rates by reducing competition among lenders or financial institutions. Colluding entities may agree to set minimum or maximum interest rates, limiting consumer access to competitive financing options or favorable rates.

These effects demonstrate how price fixing distorts the normal functioning of the market, restricts consumer choice, and hampers fair competition. By eliminating price competition and artificially manipulating market conditions, price fixing can harm consumers by limiting their ability to find the best prices, terms, and value for the products or services they seek.

Antitrust Laws:

Antitrust scrutiny may occur when competitors engage in discussions or agreements related to the topics listed below. These discussions can raise concerns as they may lead to anticompetitive behavior or collusion, which violates antitrust laws:

Present or future prices: Competitors discussing or agreeing on present or future prices can lead to price-fixing, which eliminates competition and harms consumers by artificially controlling prices.
Pricing policies: Coordination among competitors regarding pricing policies can restrict competition and limit consumer choice, as it prevents independent decision-making and price differentiation.
Promotions: Collusion or agreements among competitors regarding promotions can reduce price competition and hinder the ability of consumers to benefit from competitive pricing and promotional offers.
Bids: When competitors discuss or collude on bids, it can lead to bid-rigging, where they agree on predetermined winners and artificially manipulate the bidding process, denying fair competition and potentially defrauding customers or clients.
Costs: Competitors sharing or discussing sensitive cost information can facilitate collusion by aligning their pricing strategies based on shared cost data, leading to anticompetitive pricing practices.
Capacity: Agreements among competitors to limit or control their capacity or production levels can result in reduced supply, higher prices, and decreased competition in the market.
Terms or conditions of sales: Coordination on sales terms or conditions can harm competition by eliminating differentiation and making it difficult for consumers to obtain favorable or varied terms from different competitors.
Discounts: Competitors colluding to fix or control discounts can restrict price competition and hinder consumers’ ability to benefit from competitive pricing and discounts offered by different market participants.
Identity of customers: Sharing or allocating customers among competitors can stifle competition by reducing consumer choice and preventing competitors from independently and fairly competing for customers’ business.
Allocation of customers: Agreeing to allocate specific customers or market segments among competitors restricts competition and limits consumer options, resulting in reduced quality, innovation, and fair market prices.
Production quotas: Coordinating production quotas among competitors can limit supply, manipulate market conditions, and impede fair competition by preventing independent decisions based on market demand.
R&D plans: Colluding on research and development plans can restrict innovation and competition by limiting independent efforts and potentially resulting in shared or stagnant technological advancements.

These discussions or agreements are typically considered anticompetitive and can attract antitrust scrutiny from regulatory authorities, such as the Federal Trade Commission (FTC) or the Department of Justice (DOJ), as they undermine competition and harm consumers.

Generally, the antitrust laws require that each company establish prices and other terms on its own, without agreeing with a competitor, but instead based on supply and demand.

Supply and Demand:

The entertainment industry can benefit from embracing the principles of supply and demand to determine pricing for their performances rather than engaging in price fixing.

According to the FTC, “Supply and Demand is when consumers are allowed to make choices about what products and services to buy. They expect that the price has been determined freely on the basis of supply and demand, not by an agreement among competitors. When competitors agree to restrict competition, the result is often higher prices. Accordingly, price fixing is a major concern of government antitrust enforcement.”

Benefits of Using Supply and Demand:

Market-driven pricing: By allowing supply and demand dynamics to influence pricing, the entertainment industry can reflect the true value that consumers are willing to pay for performances. When demand is high and supply is limited, prices can naturally rise, ensuring that the market equilibrium is reached.
Fair competition: Embracing supply and demand pricing promotes fair competition among performers, venues, and production companies. It allows them to differentiate themselves based on factors like quality, uniqueness, and reputation rather than artificially controlling prices through collusion.
Consumer choice: Pricing based on supply and demand empowers consumers with a range of choices. They can select performances that align with their preferences and budgets, fostering a more inclusive and diverse entertainment landscape.
Efficient allocation of resources: Supply and demand pricing encourages efficiency in resource allocation. Higher prices during periods of high demand incentivize performers and production companies to meet the market needs, invest in their craft, and deliver high-quality performances to meet consumer expectations.
Stimulating innovation: When pricing is determined by supply and demand, it encourages innovation and creativity in the entertainment industry. Performers and production companies strive to differentiate themselves by offering unique experiences, pushing the boundaries of their artistry, and introducing new formats or concepts to meet evolving consumer demands.
Consumer welfare: Supply and demand pricing helps protect consumer welfare by preventing artificially inflated prices and price collusion. It allows consumers to enjoy performances at prices that accurately reflect market conditions, fostering a more competitive and accessible entertainment market.
Long-term industry sustainability: Embracing supply and demand pricing supports the long-term sustainability of the entertainment industry. Fair pricing practices help ensure that performers and production companies receive appropriate compensation for their work, enabling them to invest in future projects, maintain quality standards, and foster growth and innovation.

It is important for the entertainment industry to adhere to fair market principles and avoid price fixing. By embracing supply and demand as the basis for pricing performances, the industry can promote healthy competition, consumer satisfaction, and sustainable growth while maintaining the integrity of the market. Dealing with undercutting in your industry can be challenging, especially when it affects your ability to secure fair-paying gigs.

Tips on Handling Undercutting:

Focus on Value Over Price: Emphasize the unique value you bring to your performances. This includes the quality of your acts, your professionalism, reliability, and the overall experience you provide. Clients who appreciate quality will often be willing to pay more for it.

Educate Clients: Some clients might not be aware of the difference between a budget performance and a high-quality one. Take the time to educate them on what goes into a professional performance, including the preparation, skill level, and overall production quality.
Community and Collaboration: Engage with your local performer community. Building a network with other performers can help establish industry standards and discourage undercutting. Sometimes, discussing the negative impacts of undercutting with peers can lead to a collective effort to maintain fair pricing.
Diversify Your Offerings: If you notice that certain types of performances are being undercut, consider diversifying your repertoire. Offer unique acts or services that are harder to replicate and undercut. This can help you stand out and maintain your rates.
Maintain Professionalism: Even if it’s frustrating, avoid publicly criticizing the group that is undercutting prices. Instead, maintain a professional demeanor and focus on what you can control—your own business practices and client relationships.
Client Feedback: If you lose a gig to a lower-priced competitor, politely ask the client for feedback. Understanding their decision-making process can help you adjust your strategy or highlight aspects of your service that are most valued.
Adapting Your Strategy: In some cases, it might be necessary to adjust your pricing strategy temporarily to remain competitive. This doesn’t mean undercutting yourself, but rather finding a balance where you can offer competitive rates while still ensuring your efforts are valued appropriately.

Ultimately, the goal is to position yourself as a premium option in the market. While undercutting may attract some clients, those who recognize and value quality will seek out the best, not the cheapest.