Inelastic sports ticket pricing, marginal win revenue, and firm pricing strategy

Abstract

Purpose-A standard result of firm theory is that a monopoly maximizes profit somewhere along the elastic portion of its demand curve. However, empirical studies of sports ticket pricing routinely find that (home) teams price along the inelastic portion of demand. Despite compelling theoretical explanations of this finding, at least one important factor remains unconsidered. A profit-maximizing team considers not only direct marginal revenue and direct marginal cost when setting a ticket price but also deferred, strategic benefit (revenue) from present game success. The paper aims to discuss these issues. Design/methodology/approach-Prior literature finds that a given win is valued in that it generates additional future revenue and likelihood of home victory rises, ceteris paribus, in crowd density. The authors construct a firm profit maximization problem in which a sports team considers both present and future revenue when pricing home games in the present period. Findings-If the deferred benefit is sufficiently large, a forward-looking, profit-maximizing team prices along the inelastic portion of its static demand curve. Importantly, this same price falls along the elastic portion of the firm's (empirically unobserved) dynamic demand curve. Originality/value-This is the first model of sports ticket pricing to recognize the intertemporal nature of demand for a sports match.

The Influence of European Cup Performances on Domestic Stadium Attendances in Romanian Football

“…Several distinctive schools of thought can be identified herein, their evolution having been affected, over time, by the nature in which the landscape of professional sports has changed. A first, conventional route stresses the impact that usual economic variables such as price elasticity (Andersen, Nielsen, 2013;Chang et al, 2016;Krautmann, Berri, 2007) 2017), income (Borland, MacDonald, 2003;Hynds, Smith, 1994) or expected quality (García, Rodríguez, 2002) have got on spectators demanding admission to stadiums. This is a bare approach that does not look at industry specifics, but only at customary microeconomic or macroeconomic variables with global applicability.…”

Sport tickets pricing strategy with home team's crowd effect

“…If the deferred benefit is sufficiently large, a forward‐looking, profit‐maximizing team prices along the inelastic portion of its static demand curve. An important consideration of Chang et al (2016) is endogenizing the second‐period ticket purchase and identifying the conditions under which a monopolistic home team prices along the elastic (or inelastic) demand curve.…”

Capacity Allocation of Game Tickets Using Dynamic Pricing

“…Krautmann and Berri (2007) [9] surveyed several empirical papers on estimated price elasticities of demand for sporting events; the estimates, collectively representing five different sports leagues, range in value from highly inelastic (−0.06) to marginally inelastic (−0.93). Chang et al (2016) [10] recognized the intertemporal nature of demand for a sports match and concluded that a forward-looking, profit-maximizing team prices along the inelastic portion of its static demand curve and importantly, this same price falls along the elastic portion of the firm's (empirically unobserved) dynamic demand curve.…”