THE BOOK--Playing The Percentages In Baseball

yeah its no different than matinee pricing at movie theaters.  i never understood the complaints about sporting events.  you can find price discrimination in almost everything.  never really got all the griping about baseball ticket prices.  i think a better communication strategy would definitely help.

Good example.  Notice though that the regular price is always the HIGHEST price.  The matinee price or kid price or senior price is always noted as a DISCOUNT.

This is really just like anything, where no one wants to pay a premium for something good, even if that’s what they are actually doing.  It’s much better to have the MSRP be the highest possible price, and then you get a discount, even if MSRP is the premium price and what you are actually paying for will be pretty darn close to the average price everyone else is paying.

The one that gets me is the beer and food prices.  They raise them at Kaufman for bigger games.  So, not only do I have to pay $5 more to see them play the Yanks, I then have to spend an extra $1 for a drink, and it takes an hour to get one when it’s busy.

See Chris, my point exactly.  The REGULAR price is what you are paying at Yanks games.  You are getting a discount at the other games. 

Indeed, would it feel better if for every ticket they gave out, they give you “Royals Bucks” that you can spend at the concession stand, and they only give you the Royals Bucks at non-Yankee games?

Perception that you are getting a deal, not that you are getting scr-wed.

I just wanted to point out that this is most certainly NOT price discrimination as JC suggests, so his analysis based on that conclusion should probably be disregarded.  That is, it is not necessarily true that consumers will be harmed, which is often true under price discrimination.  Dynamic pricing may benefit both consumers and producers by allowing for more efficient outcomes through the proper pricing of different products differently. 

Price discrimination requires charging different prices to different consumers for the SAME PRODUCT.  Properly charging different prices for very different products is far enough removed from price discrimination that I’m surprised he tried to make that clumsy connection.  The two main determinants in any economic analysis of price are cost and demand, both of which are very different for a weekend Yankee game than they are for a weekday matinee against the mighty Royals.

mfan,

I think the connection to product differentiation as well as price discrimination could be made in the article (which I note on JC’s site).  He somewhat addresses that concern in his reply.

However, there is most definitely price discrimination going on with the fans that buy single game tickets before game day, and those that buy them at the gate.  On the other hand, games against the Yankees are probably different than the Royals.

I’m unclear as to why the ‘costs’ to playing the Yankees would be higher than the Royals.  I may be missing something.  But, I’m not certain this is the case, and I’m going to guess the marginal cost to selling tickets for both games is essentially $0, since the stadium is already built and ticket sellers are already on the job.

"Price discrimination requires charging different prices to different consumers for the SAME PRODUCT. “

Interesting.  So, even when I want to agree with JC (and I really wanted to!), I was wrong to do so?  I just can’t win.

So by “same product”, that would mean that it would have to be in the same seat section as well, correct?  Box seats and bleacher seats don’t count as the same product, even if to the same game, because, like airplane tix, you have first class and coach.

***

So, millsy then submits the only event that you can have price discrimination: different pricing based on time or method of purchase, be it day-of-game, weeks or months earlier, via online or in person, and part of a season ticket package or not.

In all cases though, it has to deal with the same product (same teams, and same ticket section).

Did I get that right?

My feel is that, officially, “price discrimination” means the same product to different people at different prices.  But I think in practice, it has a certain amount of fuzziness to it, and it’s a matter of degree.  If an airline charges $500 to travel during the week, but $300 to travel over the weekend, is that price discrimination, or is it two different products?  I think either argument can work.  I have definitely seen this airline fare argument as an example of price discrimination.

You could also argue that the “advance purchase” case, where a ticket costs more on the day of the flight, is also a case of a different product.

The purest price discrimination is when Zellers offers 10% off to seniors the first Monday of every month.  Same product, different price, depending on who you are.  That’s one case where price discrimination is NOT supposed to work, due to the ease of a senior buying cheap and reselling to me, but I guess the time and effort of hooking a willing seller to a willing buyer is too high to bankrupt the store.

I’d argue that the Zellers case is the purest price discrimination, then the advance purchase, then the weekday flight, then the higher-cost Yankee games.  I’d argue that the Yankee games isn’t really price discrimination at all.

Anyway, I could be wrong—I’m not an economist.  I await millsy’s take.

The reason it costs more to have a game against the Yankees is that the Yankees drive up everyone’s payroll.

That being said price isn’t solely dependent on the cost of production.  It is also related to what people are willing to pay.  Otherwise downloading mp3s wouldn’t be piracy, it would be paying the marginal cost of the mp3.

To do dynamic pricing as tango has described (face value at yankee vlaue) the problems would come from season tickets.  If everything was priced at Yankee price you’d price out a lot of fans.  Giving reductions based on expected value of opponents would create an amazing number of differently priced 27 game packages.

I’ve actually discussed with people the idea that season ticket packages are in fact a different product in themselves.  That’s extremely fuzzy, though, but I think it does cater to different types of consumers with a different demand curve than single game buyers.  Box seats and bleacher seats are really fuzzy, as they could be seen as different products as well.

I agree in general with Phil above (as does JC in his response on his site, I think) that there can be a fuzziness to it.  The logic behind it all is generally the same (teams are getting at consumer surplus, and also letting more people see the game).  So, you’re not wrong in agreeing with JC, Tango, and my post at my blog was in a very similar vein (vain, vane?) as Bradbury’s.  But in an economics class, it would be a fun debate over what’s what.

The book definition is same product, as with price discrimination you’re talking about the same demand function.  With a Yankee vs. a Royals visitor, you’re probably looking at different price elasticities of demand (to get nerdy) on differnet curves.  How much it differs is the question.

One of the classic examples of something that would be a way to price discriminate (if we want to use it loosely) and product differentiate is copiers/printers.  Printer technology often goes X pages per minute (pretty fast).  Since the ability to price discrminate there is minimal (they don’t know who at Staples is buying which one) companies actually put in a mechanism to SLOW the printer down, so they can charge a lower price for that product.  In essence they’re the same product (and in fact the cheaper one to buy has more materials/cost!), but they are released as the XP1000 and the XP800 or whatever.  The only difference is the extra chip to slow down the XP800 so they can sell that to the people that aren’t willing to pay the profit maximizing SINGLE price put on the XP1000.  We could talk here also about 720i vs. 1080i HDTVs.

So, in JC’s example, the kid that wants to see the Royals (need to print) and doesn’t care about the Yankees (top speed) and can’t pay for it is looking at differentiated products to a degree.  It’s really fuzzy here if you ask me, and they’re pretty interrelated.  However, since the team in question doesn’t control who the visiting team is, just the prices, I could see how it can get even fuzzier.

Pure price discrimination involves identical products. So some examples are:

- Changes in price for a coach seat on a specific flight based on how far in advance you buy it.
- “Academic” software with no restrictions on use
- Employee/senior/student discounts
- Financial aid for universities results in certain people paying less than others

Then you can argue that there are cases where you are getting an almost identical product, which is not exactly price discrimination but close. So in that case we would put coach vs. first class tickets (you still get the main benefit of travel), premium vs. regular coffee, good seats vs bad seats to a sporting event/show, etc.

The difference between Yankees and Royals games might fall under the latter definition. After all if you go to your home team’s games, presumably the main reason is to see them play.

Andy has some good examples. 

I know one that the EU has recently had issues with (Europe seems to think price discrimination is evil, despite the fact that it can be pretty ambiguous to the consumer and more efficient overall) is iTunes charging different prices to different countries of residence based on IP addresses and things like that.  They are forcing (or trying to, not sure what the legislation did yet) iTunes to charge the same price to all countries in the EU.  Of course, for the same reasons as described for baseball, that’s not necessarily the most efficient OR the best outcome for customers.  Some are going to have to pay more, and likely won’t buy as much, while others probably benefit in paying a little less.

Doesn’t the EU pay less for patented drugs than consumers pay in the US?  Nobody complains about price discrimination when it means THEY get the lower price.  You don’t see senior citizens picketing outside the theatre, and you don’t see feminists demanding to pay full price on Ladies’ Night.

And don’t we all like to see AIDS drugs being donated to poor people in Africa?  Dammit, they should pay full price like the rest of us!

As Tango implies, if economists had decided to call it “selective discounting” or “means-based pricing” rather than including the word “discrimination,” things would be different.

Yeah, price discrimination had the unfortunate destiny of being lumped into other things (as do other forms of discrimination).  It’s funny how people trend toward their own interests.

As for the EU paying lower prices for drugs, I would imagine that was a consequence of public healthcare and leverage toward those drug companies, using the entire population of the EU.  But I guess it’s nonetheless price discrimination...er, ummm...selective discounting.

"If everything was priced at Yankee price you’d price out a lot of fans. “

No, I mean to state up front that the base price is the Yankee price.  But, 95% of the tickets sold will be discounted, just like 95% of cars are sold at below MSRP (I guess… I hope anyway).

Everyone is getting a deal, but everyone thinks that they got a “special” deal, when in fact, they all got the same deal.

I understand, I’m just saying for season tickets it gets more complicated.  If the face value is the yankee price and the dynamic is based on reduction from face.  If you leave packages at face you price people out.  If you don’t you get a lot of weird package prices.  The 27 game pack I get will be different than price someone else pays for the same quantity/section because of the opponent reduction. It’s not an insurmountable issue, just a change that will be weird for people buying packages.

The packages will certainly not be at face!  Everything gets discounted.

Nothing changes, other than how you present things.  This is what I’m trying to say:
40$ Yanks
30$ Angels (25% off!)
20$ Royals (50% off!)

48$ Angels+Royals package (40% off the 80$ base price!)

"However, there is most definitely price discrimination going on with the fans that buy single game tickets before game day, and those that buy them at the gate.”

I could argue that they are different products because one involves the convenience of not having to plan ahead.  However, as mentioned by others, it’s a matter of degree and this is close enough that I wouldn’t object to calling it price discrimination.  Airline ticket prices changing by time of purchase is one of the usual textbook examples and is very similar.

“I’m unclear as to why the ‘costs’ to playing the Yankees would be higher than the Royals.  I may be missing something.  But, I’m not certain this is the case, and I’m going to guess the marginal cost to selling tickets for both games is essentially $0, since the stadium is already built and ticket sellers are already on the job.”

First, we need to focus on the cost of putting on the game, not the cost of selling the tickets.  The cost of a Yankee game is more because they pay higher salaries.  We could debate short- versus long-run to try and figure out the true marginal cost.  But, we won’t.  It costs more to put a team like the Yankees on the field.

mfan,

Fair enough, as I said these things are always up for some debate, and in the end it’s how you really do define the market (as JC states at his site).

As for the long and short run costs for playing against the Yankees, I think it’s fair enough to say that while the marginal cost is not exactly $0, the immediate decision of how to price the tickets isn’t going to depend much on the past cost of putting the team on the field, or the fact that the Yankees exist.  That cost shouldn’t be taken into account at this point, if we’re talking about maximizing the number of fans today. 

We already spent the money, the Yankees already are there on the schedule and we did our best to put out a team to compete at X level taking into account the Yankees’ effect on the price of talent.  In that case, the only thing that should be taken into account--as the dynamic demand model is adjusted for today’s game--is the best way to make the most money for this game right now.  I think the use of the dynamic demand model is more closely associated with the short run variation in demand, rather than the long run talent choice of the team.  By perfectly pricing the games using that model, we fill every single seat at exactly what each consumer values that seat.  If there’s an empty seat, and the team has the ability to perfectly discriminate (I’m thinking in extremes here), then they have no reason whatsoever not to sell that seat for a penny to the last fan willing to pay it.  They’re not losing money on this proposition, as it doesn’t cost them anything to have the fan walk through the turnstyles at the front gate.  There’s no extra employee because of that person, there’s no building of that extra seat.

In fact, I know some teams at the last minute give out tickets for free, simply to A) tell their sponsors “we sell out every game” B) because people will spend money on things like concessions and merchandise once in the stadium and C) because some recent evidence shows that people become ‘hooked’ on the sport once they get a taste of it.

But a 27 game package with 2 yanks, 12 royals, 4 angels, 9 twins is different than 3 yanks, 11 royals, 4 angels, 9 twins.  Which is fine, but that makes designing the packages much more difficult.  Currently it’s just fit seats and dates together, price is the same.  I didn’t find out the games I got in my 27 game package last year until after I paid for them.  Since all games had the same cost it might be annoying to end up with a bunch of bad games, but I couldn’t say I was ripped off.  That wouldn’t work with dynamic pricing.  They’d have to develop the packages and then announce the price and then hope that people wanted packages that were heavy on crappy games.

"I didn’t find out the games I got in my 27 game package last year until after I paid for them.  “

Yeah?  Where I come from, they tell you the games in each package.  I’ve never seen a blind one, other than “Sunday package”, where it’s just Sunday games.  Even there, the schedule is announced before the package is sold.

Really?  They sell packages without telling you the opponent?  Which team is this.  It must be in the minority.

Tigers.

On the 27 game packages page they have this disclaimer:

“NOTE: Current partial season ticket holders should NOT buy tickets on this page as renewal information has already been mailed to you.”

I bought in with a guy renewing, we had to put down before we were told the dates or opponents.

http://detroit.tigers.mlb.com/det/ticketing/miniplan_27game.jsp#season_plans

I see.  For those early-birders, and renewals, they have to buy-blind.  If they wait long enough, they’ll be told the teams, but you will get whatever seats are available.

It’s a little like the argument in this book I just read between “half off” and “buy one, get one free”.  It’s psychological to a great extent.  If the team made the “base price” the premium price, they’d get headlines “Royals Double Ticket Prices”, which might drive away sales to people who don’t read behind the headlines. 

On the other hand, dynamic pricing on concessions is simply price-gouging.  Ballparks already use their monopoly on concessions improperly (in Seattle, they claim you can’t bring in liquid because they are enforcing the liquor laws, which somehow applies to a sealed container of soda); to add a dollar to a Yankee game is just greed.

"As for the long and short run costs for playing against the Yankees, I think it’s fair enough to say that while the marginal cost is not exactly $0, the immediate decision of how to price the tickets isn’t going to depend much on the past cost of putting the team on the field, or the fact that the Yankees exist.  That cost shouldn’t be taken into account at this point, if we’re talking about maximizing the number of fans today.”

I think we’re just talking about two different things.  You’re thinking about the profit-maximizing decision of the home team.  I’m thinking about the overall welfare impact, in which case the cost of putting the Yankees on the field is greater.  Greater resources are used in a Yankee game than in a Royal game and so higher prices can be justified in order to ensure those that value it highest are the ones who go.  All I was really trying to say is that there is much work to be done in order to determine the welfare impacts of dynamic pricing.  I didn’t like JC’s assessment that it would harm consumers.  Even in the case of a Yankee game that would sell out under either ticket price, there are distributional concerns (i.e. are the consumers who value the game the highest the ones who are going).  I think (?) we would agree that more work needs to be done to determine the welfare impacts of dynamic pricing.

I’d agree there is much more to the overall welfare impacts of the pricing system.

Did Bradbury conclude it harms consumers?  I thought that his general point was the opposite.  Maybe I’m misunderstanding you.

Perhaps I’m missing the forest for the trees, but the following certainly gives the impression that fans are harmed, notwithstanding the leading sentence:

“How does charging more for premium games benefit fans?  For the fan who was previously able to buy a ticket for $20 who must now pay $25, that fan is certainly worse off. But, if he values attending the game at $25 or greater, then all that has been lost is consumer surplus—the difference between what a consumer is willing to pay and what he/she actually pays. That loss to the consumer is offset by the gains to the seller. If we’re not picking sides, the world has the exact amount of surplus as it used to have; all we’ve observed is a transfer of surplus from one party to another. It’s easy to see yourself as the fan who’s ticket price has gone up and be pissed about it. But, I’m not really all that sympathetic. People are paying a price for a product they value at that price or higher, I’m not seeing a downside. You used to be able to buy something you valued more for less, and now you have to pay a higher price that is still equivalent to or less than what you value the product. And when the product is a baseball game, cry me a river in the name of social justice.”

Sure, some consumers are harmed, but there is also additional surplus created through the provision of the game to those with a higher willingness to pay.  In his example, those who are willing to pay 20-25 are replaced by fans willing to pay more than 25, which creates additional surplus.  It’s not price discrimination.  It is the proper pricing of a product so that those with the highest willingness’ to pay are those who get tickets.

Tango, teams don’t want to advertise 50% off or something because it looks like discounting (in their minds lowering the brand name image). Instead, using words like premium are adding to the feel of exclusivity. This kind of stuff is always come up by the PR departments.

mfan,

I think I’d agree with that statement.  I thought JC was getting at the fact that some could be worse off (they’ll have to pay more for their same seat) while others get tickets lower.  The discrimination is toward differences in the consumer, rather than differences in the product, which is where I think his explanation can get a little fuzzy.  All in all, I still agree that dynamic pricing can be a good thing for the consumer as well as the team, and is almost definitely more efficient.

Whatever happens, you have to show the consumer how in some cases, say 25% of the time, they CAN get a lower deal than they did last year.

Otherwise, it looks like a cash grab.

The NY RAngers for example had a policy of not raising seats unless they made the playoffs, and they went a few years without making the playoffs.  So, there’s a definite obvious benefit here. 

Basically, the consumer doesn’t want surprises, and he wants to SEE that he’s getting a good deal.