The $7 Ballpark Brewskie

In David Friedman’s book, Hidden Order: The Economics of Everyday Life, he offers an explanation of movie theater concession prices: discriminatory pricing. In lay language, he’s saying that not everyone values the cineplex experience at the same level. While everyone in Manhattan who goes to the movies values the experience at $11 or better, someone who thinks it’s worth $20 won’t hesitate to buy popcorn and soda for $9, while those don’t will skip the refreshments. (Unless, that is, they value for popcorn and soda at $9 independent of context.)

For a variety of reasons, this logic can’t be directly mapped onto the MLB ticket/concession pricing scheme, but the overall outline of the argument applies. At most parks, you can take in a game and spend anywhere from $10 (possibly less) to $100 (usually considerably more).

Warning: I start sounding like an Econ textbook

Imagine for a moment that, like those at most movie screenings, every ticket to a major league game is equivalent. (There are no prime boxes and no obstructed view seats; the experience is identical from any of 40,000 locations.) Teams, then, couldn’t get away with charging different prices at the box office for different sections: that would be like charging more for some bottles of soda because they came from a higher shelf in the refrigerator.

Say that a team charged $25 each for those thousands of equivalent seats. They’d be leaving plenty of money on the table. Some people would gladly pay $50, meaning that for each such person, the team isn’t making as much money as they could. Similarly, the high minimum price eliminates some revenue as well. As long as there are empty seats, the team would probably prefer to sell them for $10 (or $18, or $3.50, or whatever) than leave them unoccupied.

This sort of price structure isn’t the end of the world. Most consumer goods are sold using a method closer to the single-price approach than to the multi-price strategy teams employ. But as we know, there are ways for teams to make more, so they do.

Let’s consider another hypothetical world, this time at the other extreme, where every ticket buyer spends exactly the maximum he’s willing to pay. Some tickets might go for four figures (especially for a noteworthy game), while others might sell for pennies. (Bleacher seats at the Trop, anyone?) Such a scheme would result in more revenue than the first. Every ticket over $25 is more money for the team, and every ticket under $25 is, as well; in the latter case, each seat is one that would’ve otherwise gone unbought.

This hypothetical may seem a bit ridiculous, and certainly impossible to implement, which it is. On a small scale, however, something like it does happen. The secondhand ticket market, comprising everything from StubHub to eBay to on-site scalpers, knows more about the specific tickets (and their market) than the teams that initially sold the seats. For instance, while box seats to Roger Clemens’s first start in Yankee Stadium this year will be highly desirable, the Yankees won’t reap the benefits of astronomical second-hand prices. They could never have predicted, when they put those tickets on sale in the offseason, that a particular day in June would be so sought after. (That goes double for the ticket sellers for Scranton/Wilkes-Barre!)

How it really works

Of course, the actual method clubs use to sell tickets is somewhere in between these two examples, and it’s very complex. If you buy a Loge Reserved seat at Shea Stadium, you may have paid about $30, while the person two rows below you paid $45, the person on your right got her ticket at a group rate of $24, and the person on your left got his ticket free with purchase of a six-game package. MLB teams will probably never individualize ticket prices to the extent that, say, airlines have, but they’ve done so to a much greater degree than that simple menu in your pocket schedule suggests.

Despite all that, how you value the experience you pay $30 for may vary wildly from how others value the similar experience that they pay $30 for. That’s where concessions come in.

This is where the movie theater analogy fits in. If you think going to the ballgame is worth $50 and you spent $30 on your ticket, you’re not likely to be fazed by the first round of seven dollar beers. There might come a time at which you decide that you’ve spent enough, but you’ll get closer to putting $50 in the team’s pocket than you would if you thought the experience was worth exactly $30.

So far I’ve focused on extending the analogy directly from food and drink at the movies to food and drink at the ballpark, but it can be applied more broadly. At most parks, you’ll have the choice to splurge on everything from parking (or even preferring parking) to memorabilia to a variety of ticket surcharges. Some of these things (memorabilia and food) have value in and of themselves: If you want an Orioles t-shirt, you’d probably have to spend a few bucks on it no matter where you purchased it. But for nearly all of these things, you’ll spend more on them if you go to a game and buy them there than if you didn’t. The difference between the at-the-game price and the not-at-the-game price of all the things you buy (plus the ticket price, of course) is a rough approximation of how much you think the game is worth.

Some teams, especially those with fan bases in higher income brackets, have taken this one step further, going so far as to offer different tiers of concessions. If you sit in a field box at Shea Stadium, a server will stop by and offer you a menu that resembles nothing so much as the room service offerings at a quality hotel. I have no idea how the profit margins on $13.95 caesar salads compare to those of $5.50 hot dogs, but I suspect it’s yet another way to help ticket buyers spend every last dollar they’re willing to part with. After all, if you value the live baseball experience at $200, your team will probably never get it from you with a combination of just one $20 ticket, hot dogs, and beer.

Why this is a good thing

To return to the case of movie concessions for a moment, let’s say the government passed a law limiting the profit margins on theater food and drink to 10%. Suddenly, prices would fall drastically (assuming the law carried with it enforcement provisions, anyway), but something would have to give. Cineplexes and movie studios wouldn’t just settle for lower profits. They would realize that they are losing out on some revenue that many of their customers would gladly give them. They might devise other discriminatory pricing methods (say, offering reserved seating for a fee, or concession delivery to your seat), but in the end, they’d probably raise ticket prices. Thus, the moviegoers who value the experience at exactly $11 would find the new price unappealing and wait for the DVD.

There are always going to be people right below that threshhold, whether the lowest price is $5 (some Yankee games) or $50 (many Broadway musicals). Given the general desire to make live baseball accessible to everyone, regardless of age or income bracket, I think most of us would agree that the lower that threshhold is, the better.

For the most part, economic concepts like “discriminatory pricing” aren’t judgments of good or bad: they just are. To say that a club prices tickets and concessions in such a way isn’t to suggest that they are particularly savvy, or underhanded, or altruistic. All we’re really doing is describing how the system works to better understand why we end up paying as much for parking as we do for an upper deck box seat. But by understanding that system as it applies to baseball, we arrive at the somewhat counterintuitive conclusion that all those pricey extras are related to ticket prices. If we consider it a good thing that inexpensive tickets be available, the other side of the coin is the sort of price structure clubs have adopted.

In other words, next time you shell out seven bucks for a beer, think of the children. Or, at least, the cheapskates who are enjoying the game because of the way clubs apply discriminatory pricing. It may not make the beer taste any better, but it does tell you something about what you think live baseball is worth. Next time you go to a game, track your expenditures and see how you value the experience. Compare that to the dollar amount on your ticket stub, and you just might be surprised.