Wednesday, August 29, 2012

Baltimore Orioles Practice Market-Based Pricing

Click to enlarge.
The Baltimore Orioles are using a market-based ticket pricing strategy by charging about a  50% premium for tickets to "prime games," which are only those games against the New York Yankees and Boston Red Sox (see pricing chart above, and full ticket schedule here).  

Guess that confirms the economic reality that "face value" isn't the same as "market value," and/or that "face value" increases when demand is high.  Also confirms the reality that if venues and stadiums set ticket prices according to fan demand and market forces, they can reduce or eliminate the secondary market for tickets being sold above face value.  There can only be a secondary market for tickets being sold above face value if the tickets in the primary market are priced below market value.    

For an artist, promoter, venue or sports team to complain about "ticket scalping" in the secondary market is really an admission that the tickets were under-priced and/or under-supplied in the first place in the primary market.  Eliminating "ticket scalping" has always been very simple: raise ticket prices and/or increase the supply of tickets (for concerts).  Looks like the Orioles have finally figured this out by charging higher ticket prices when fan demand is high for Yankees and Red Sox games.  It's basic ECON 101.  

Update: To avoid the controversy about whether the Orioles' differential pricing qualifies as "price discrimination," I refer to it now as "market-based pricing."  The main point is that the Orioles differential ticket pricing demonstrates the economic reality that a ticket's "face value" is often much different (higher or lower) than its true market value.  With a uniform ticket pricing strategy, the Yankees and Red Sox games would frequently sell out, which would then create a secondary market where tickets would sell above face value. By charging a ticket premium for prime games, the Orioles organization can effectively eliminate or reduce "ticket scalping."  It's a step forward in the right direction that a professional sports team demonstrates some understanding of basic economics, and prices some of its tickets according to fan demand.       

27 Comments:

At 8/29/2012 8:59 PM, Blogger Colin said...

This has been going on in English soccer for a while, with lower tier clubs like Wigan, Fulham, etc. charging significantly more for games against top opponents like Manchester United, Arsenal, Man City and Chelsea.

 
At 8/29/2012 9:21 PM, Blogger Jon Murphy said...

There is a reason why Oriole Park and Camden Yard is called "Fenway South" up here.

 
At 8/29/2012 9:38 PM, Blogger Ken said...

I wish Camden Yards and M&T Bank Stadiums would go away. It's at least 10 acres each, including parking lots, of prime downtown real estate eaten up by these money sucking monstrosities. And who are the idiots who decided what Baltimore really needed for Labor Day weekend for the next few years was to shut down the main roads of downtown to host the Grand Prix.

Camden Yards generates approximately $3 million in annual economic benefits to the Maryland economy, at an annual cost to the taxpayers of Maryland of approximately $14 million.

Pro sports is a massive transfer of wealth from tax payers to sports teams, owners, and sports fans. What an effing rip off. Pro sports and the support pro sports stadiums get is a prime example of the massive economic ignorance of people worldwide.

 
At 8/29/2012 11:07 PM, OpenID whyzat said...

Pricing the product correctly is a good way for teams/promoters to maximize revenue.

The O's don't quite have it right though... they ignore things like time of year and how close the pennant race is.

The cold 1st April stand vs NYY brought in 25,478, 24,659 and 22,919. (and if I'm not mistaken AL teams use paid attendance) The two NYY games in May brought a paltry 16492 for the 1st game and 24055 for the 2nd. For an average of 22,720. The Oakland series on a July weekend brought in more than that on average. Did they really price correctly to sell out their 45,900 capacity or at least maximize revenue?


For a better pricing model look at the the SF giants. They take into account lots of factors and actually uses a variable model. Prices could be $50 today, but if the weather looks bad the week of the game and they might drop it to $30. The price you pay depends on when you buy.

A ticket issuer can and should charge what they think the market will bear for their product. However if they guess wrong...

 
At 8/30/2012 12:09 AM, Blogger NormanB said...

The market/economy justifcation for selling tickets for whatever you want is a no-brainer. But I wonder how many of you have been out in front of a sports venue buying those tickets.

First, you never know if the money you are holding is going to just get snatched. You never know if those are 'real' tickets. You'll get between 2-3 scalpers battling with each other for the right to sell to you. I've had a black guy call me a racist because I bought from a white guy. (I told him, 'not even close' and shut him up.) Scalpers try to intimidate you, not pleasant. In sum, lots of unsavory, bad things happen out there and that is a problem.

I suggest 'scalpers's' booths and a police presence.

PS: Sporting events are easy to get into, just bring the cash. Cultural events are very hard but you might be able to score a single once in a while but most times you'll get shut out.

 
At 8/30/2012 4:44 AM, Blogger Nick Rowe said...

Hang on Mark. This might be price discrimination, but we don't know for sure yet. It depends on the shape of the Marginal Cost curve, and where we are on it.

My guess is that the MC curve is reverse-L shaped. If spectator numbers for both types of games leave us on the horizontal bit of the MC curve (so there are always empty seats) then I agree it's price discrimination. Because price discrimination is when there are different prices for goods with the same MC. But if the stadium hits capacity, and we are on the vertical bit of the MC curve, then it's not price discrimination, just supply and demand.

ECON101 yes. But which ECON101 model? We need one more bit of data to know. Is the stadium at (or near) capacity?

 
At 8/30/2012 6:09 AM, Blogger Michael E. Marotta said...

On the Ferengi Planet, everyone has bidding software on convenient devices, so, actually, no two prices are ever the same. If you told them that you knew of a planet where everyone expects the same price, they might guess the Klingon Homeworld. Basically, this warrior-mentality ignorance of ours is reflected in the comment from an educated reader that so-called "marginal cost" determines prices.

 
At 8/30/2012 9:55 AM, Blogger Steve Hamlin said...

@Michael Marotta: "Basically, this warrior-mentality ignorance of ours is reflected in the comment from an educated reader that so-called "marginal cost" determines prices."

So you don't believe in efficient markets, then? Doubting that competition and creative destruction eliminate economic rents? You must be a communist :)

 
At 8/30/2012 10:11 AM, Blogger Kevin Otwell said...

Like whyzat said. The SF Giants perform similar market pricing adjustments. You can see some tickets can rise from $8 upwards of $41 in the link.
SF Giants Ticketing

 
At 8/30/2012 11:05 AM, Blogger Ken said...

NormanB,

First, you never know if the money you are holding is going to just get snatched. You never know if those are 'real' tickets.

This is at best a non-sequitir. If I go to Macy's to buy a Seiko watch, I don't know if the money I'm holding is going to "just get snatched". Thieves are everywhere. Further, I don't know if the Seiko watch I bought was a real Seiko.

I have bought from scalpers many times and sold tickets as a scalper a couple times. I have never been intimidated. I have never felt unsafe. Requiring police presence is dramatic overkill.

Nick Rowe,

This might be price discrimination, but we don't know for sure yet.

Definition: "Price discrimination or price differentiation, exists when sales of identical goods or services are transacted at different prices from the same provider."

The same seat sold by the same provider for a different price. Sounds like price discrimination to me.

 
At 8/30/2012 11:57 AM, Blogger Ed R said...

It is NOT price discrimination to charge more for the Yankees or Red Sox than for, say, Kansas City.


Definition: "Price discrimination or price differentiation, exists when sales of identical goods or services are transacted at different prices from the same provider."

The Oriole spectator is paying to watch the players in action, not to sit in a seat. A business professor should know the difference.

 
At 8/30/2012 12:17 PM, Blogger Jon Murphy said...

The Oriole spectator is paying to watch the players in action, not to sit in a seat.

You are right. Which is why it is price discrimination. The Baltimore Orioles play 81 games at home. 36 of those games (18 against Boston and 18 against New York) cost more than the rest. The Oriole team that takes the field each game is (more or less) the same.

 
At 8/30/2012 12:24 PM, Blogger Buddy R Pacifico said...

Ed R states:

"The Oriole spectator is paying to watch the players in action, not to sit in a seat. A business professor should know the difference."

Ed, you must watch MLB games on television becuase you do not seem to know the difference in seating.

Regardless of the team, the 300 level outfield seat is not as good as 100 level baseline seat, to watch "the players in action".

Ed, have you ever been to a baseball game? I have been spoiled by occasional 100 level seats to Mariners games and now I discriminate on seating.





 
At 8/30/2012 1:03 PM, Blogger Gragost said...

They also charge a premium for the Phillies. So far the Nationals aren't considered a premium team. The Orioles also charge an additional fee if you walked up to the ticket window on game day and buy a ticket. Basically Angelos has figured out a way to legally scalp tickets. If anyone notices Oriole fans are not returning to Camden Yards in spite of the exciting season the Birds are having. People are refusing to be robbed by our wonderful owner Peter "ambulance chaser" Angelos.

 
At 8/30/2012 2:09 PM, Blogger Mike said...

Ken,

"Camden Yards generates approximately $3 million in annual economic benefits...at an annual cost to the taxpayers of Maryland of approximately $14 million."

I'm not going to say that this stadium pays for itself or makes big bucks....but the guy who wrote that is not factoring in very much information (to the point that his numbers must be intentionally misleading).

The way I figure it, the top 13 players (alone) pay $3m in state income tax. One may say, "couldn't they pay that while playing in the old stadium?" I'd say, ask the Colts.

 
At 8/30/2012 2:41 PM, Blogger Nick Rowe said...

Ken: "Price discrimination or price differentiation, exists when sales of identical goods or services are transacted at different prices from the same provider."

I just Googled. Wow! That definition of price discrimination is all over the internet. But it's wrong. Or rather, it's incomplete. How do we define "identical goods or services"? And the standard textbook answer to that question is: when they have the same Marginal Cost.

 
At 8/30/2012 2:48 PM, Blogger morganovich said...

mike-

that seems like a pretty flimsy rationale.

the top directors at goldman sachs would pay far more tax than that.

should baltimore build them a wildly opulent free office to attract them?

isn't that that same argument?

you seem to be begging the real question here:

why spend public funds to pay for the facilities for private business?

teams have found way to pay for their own stadiums.

the giants did it in SF and that is some seriously expensive real estate.

if there is not enough profit/private interest in a team to pay for it, why force the public to pay?

baseball is not a utility. it should pay its own way.

further, you are comparing apples and oranges. $3 million in economic benefits accrue to only a few. the taxes are paid by all. that is called cronyism.

 
At 8/30/2012 2:51 PM, Blogger Mike said...

Wouldn't the marginal "cost" of the Yankees payroll be considerably different than the cost of fielding the Royals? Not identical products, not identical costs (assuming that you factor MLB as a monopoly).
Visiting teams get a percentage of gate, so there is more than one provider.

 
At 8/30/2012 2:54 PM, Blogger Mike said...

Morganovich,

As I said, I'm not saying that the stadium is a god or bad deal. All I did was refute the statement that having that park only benefits the citizens of Maryland by $3m/year. That's clearly not accurate and I'm surprised that a fact-oriented guy like you would try to take me to task for pointing it out.

 
At 8/30/2012 2:59 PM, Blogger morganovich said...

nick-

i do not think that is a good definition of price discrimination.

what does marginal cost have to do with it? it's demand that matters.

price discrimination is charging different prices for the same good or service.

that is not the case here.

playing the yankees is valued more highly.

it's like going to the opera and having alagna sing instead of your local tenor.

it's a different product.

you might not value it more, but many will.

it's not price discrimination to charge more for better entertainment.

 
At 8/30/2012 3:02 PM, Blogger morganovich said...

mike-

i'm not disagreeing with your fact, but rather with the conclusions that derive from it.

if we start thinking in terms of giving free stuff to anyone who will pay income tax, where does that lead?

further, you are assuming your premise, that this tax would not be being paid anyway at an old stadium or that, absent public money, private money could not have been found.

i do not think either of those premises have been demonstrated, thus, as a "fact based guy" i do not think you can make the claim you have. it's $14 million in likely unneeded costs to secure a benefit that they could have had anyway.

 
At 8/30/2012 3:08 PM, Blogger Jon Murphy said...

How do we define "identical goods or services"? And the standard textbook answer to that question is: when they have the same Marginal Cost.

I've not seen a textbook use that definition (but I could be wrong).

I don't see what MC has to do with it. MC is a firm-specific thing. Products can be identical even if produced by different firms.

 
At 8/30/2012 3:16 PM, Blogger Mike said...

Morg,
I didn't make any claim...unless you're considering my comment about the Colts as some kind of claim. That was intended to be more of a statement about (what I believe) was in the minds of officials and citizens when they were being held over a barrel by the team.

True that some clubs can and have gone for private financing....would you rather come up with a private solution to stay in the bay area or take another city's offer to pay you to move? Easy choice. Not so for a medium-ish market like Baltimore.

 
At 8/30/2012 10:39 PM, Blogger Dahveed said...

MP, correction, they haven't eliminated or reduced the scalping of tickets, only stepped into the role of the scalper and put the secondary ticket markets out of business.

Personally, I like a legal secondary market for tickets. Its a good thing when goods are resold to others who value them more. The war against scalping is an odd thought. It would be like Ford being upset that a '65 Mustang was sold for more in 2012 than it did in 1965.

 
At 8/31/2012 10:44 AM, Blogger morganovich said...

"True that some clubs can and have gone for private financing....would you rather come up with a private solution to stay in the bay area or take another city's offer to pay you to move? Easy choice. Not so for a medium-ish market like Baltimore."

i do not understand your reasoning here.

so, baltimore and maryland taxpayers should be forced to pay for somehting that had massively negative returns? why is that precisely?

you seem to be either arguing that a project that was not seen as attractive enough to get private funding ought to be shunted onto taxpayers (to benefit a privately owned crony) or that because another city threatens to do something economically stupid, that baltimore ought to beat them to the punch and commit the stupidity themselves.

neither sounds like a great plan to me. am i missing somehting here?

also:

you did make a claim. inherent in your argument that there was $3 million in taxes from payroll to be had is the assumption/claim that that tax was somehow incremental.

my point was that that is quite possibly not true. they were getting it before. they might get it in the future at the old stadium or a private one.

this "over the barrel" you describe seems odd to me. how is demanding that someone spend $14 million to save 3 having them over a barrel? if i demanded that of you, would you feel compelled to acquiesce to my demands?

the real issue here is one of political donation and patronage where a big crony capitalist buys gobs of taxpayer funds with some donations and then reaps massive monetary gain.

it's simple political capture and crony capitalism.

there was never any barrel to have anyone over, just politicians being bought and paid for and pretending there was as spin.

 
At 8/31/2012 10:45 AM, Blogger Ed R said...

I am pleased Dr. Perry has changed "discriminatory" pricing to the more economic correct "market-based" pricing.

As others have pointed out better than I; a seat to watch the Yankees is perceived as different (and more valuable) than the same seat to watch Kansas City.

BTW: I do not think the concept of marginal cost enters the discussion. There is little or no cost difference to the Orioles to stage the Yankees game than with K.C. But there are obviously great potential marginal revenue differences that the Orioles exploit.

 
At 8/31/2012 1:06 PM, Blogger Mike said...

Morg,

I can only assume that you've never lived in a town (of this size) that has had these issues come up. In my experience, the tax revenue used to build and improve stadiums have always been voted on where I have lived. I do not know if that happened in Baltimore, but I'd bet it did.... and that wouldn't be cronyism, nor would the people be "forced" to do something they didn't approve. There are many, many people who believe sports teams mean as much or more as any public work and have no problem paying for them...you can argue that is a stupid thing to do, but that's just opinion. It is what it is.

This particular issue was a long time ago, but I remember the very real threat of the team uprooting and moving to DC. So, this team could have moved down the road to a much bigger media market (and made more broadcast money over night).

I think my point about the $3m is pretty obvious and it really doesn't matter if you think they may still get that money without a new stadium. I could say that I am sure they would lose the team without a new stadium and neither of us would be right or wrong because we will never know. The point was that the team only brings in $3m to the state of Maryland....that is clearly not true if the income tax alone is $3m. That's the only point I'm making. Of all people, I am sure if you looked at the direct and indirect revenue [produced by this team, you'd find a number much greater than $3m. You don't have to like the deal, but my entire point was the '$3m post' is inaccurate.....knowing that, we really don't know if this is a good deal or a bad deal for Maryland.

 

Post a Comment

Links to this post:

Create a Link

<< Home