Multiproduct Pricing in Major League Baseball: A Principal Components Analysis

Abstract

The empirical analysis of multiproduct pricing lacks clear theoretical guidance and appropriate data, which often render traditional regression-based analyses impractical. Under these circumstances the factors underlying price variation can be inferred using a new methodology based on principal components. Analyzing ticket, parking, and concession pricing in Major League Baseball with this methodology demonstrates that general demand shifts are the primary factor, but explain only half of overall price variation. Also important are price interactions deriving from demand interrelationships between goods and attempts to maximize the capture of consumer surplus in the presence of heterogeneous demand. (JEL D40, L11, L13)

Price Elasticity of Demand in the Secondary Market

“…Estimation challenges related to variable selection and measurement, for the price and quantity variables especially, have likely contributed to the recurrent finding of inelastic pricing in professional sport (Cairns et al, 1986; Downward et al, 2009; Fort, 2004). Structural estimation requires extensive price and quantity data, and it is difficult for researchers to obtain detailed information about variation in prices and quantities demanded, seat quality, and ticket complements (Depken & Grant, 2011; Hakes et al, 2011). As a result, researchers have largely relied upon aggregate attendance figures and average ticket prices that cannot capture the variation in demand that exists across seating locations and, relatedly, consumer types (Fort, 2004; Marburger, 1997).…”