Tuesday, October 27, 2009
Cornering the market on ticket sales
Posted by Dan NovickAn idea came to me today during my microeconomics discussion section, and I'd like to flesh out my thoughts on it here for people to see and to possibly get some feedback. The section readings for today included one about Bunker Hunt, the Texas oil man who tried to corner the world's market for silver, and an Associated Press article about the San Francisco Giants' ticket pricing scheme. I think you can guess which one I'm going to write about here.
In a nutshell, the article is about a new (as of December 2008) ticket pricing plan the Giants were implementing on a small scale for this past season. The plan was to have variable pricing on select sections, depending on the game. Prices could change depending on factors ranging from opposing team, to opposing pitcher, or even the weather. The test sections are in the upper levels in the outfield, which don't usually sell out, and account for around 2,000 seats. Prices will vary only a few dollars in either direction, and the main idea is just to see how fans will react to this policy.
The discussion in class centered around whether or not this would annoy fans, who now might have to pay different prices for the same product. The Giants are calling it "dynamic pricing." In economics, this is called first degree price discrimination. Price discrimination is completely legal and ethical, by the way. Car dealerships do it all the time. There are fans who would pay more for a given seat on a certain day than the Giants are selling it for; and there are games where $30 seats are empty, but could have potentially been filled had the seats been priced at $20 on that day. Both of those are examples of the Giants losing out on sources of revenue.
So the Giants are doing this little test run to see if the fans have a negative reaction to it. Fans might react negatively because you could be paying, say, $50 for your seat, but the guy next to you might be paying $40 because of dynamic pricing. Seems like a decent way to anger fans who feel they were ripped off, right? But this is currently happening every single day. Ever heard of StubHub.com? The example doesn't do much right now because World Series ticket prices are jacked up anyway, but if I go over there in March looking to buy tickets for opening day, I'd have to pay three or four times face value for a ticket, maybe even more. Fans will pay higher prices for games they really want to see, and they currently are already.
Right now, teams are losing out on the money made from the secondary market for tickets (a.k.a. StubHub and the like). There are fans who are paying a higher price for tickets they really want on StubHub, and teams are still only taking in the face value of the ticket. Five paragraphs in and here's my idea: Why doesn't a team like the Giants (as an example), who are open to pricing experimentation, create their own secondary market for tickets in an attempt to capture some of the revenue lost from resales?
The idea is relatively simple. The Giants website would have a forum-type page, similar to what StubHub currently has, where people could buy and sell Giants tickets. StubHub makes money by charging a commission to both the buyer and the seller of each ticket. The buyer is charged 10% and the seller is charged 15%, so the company makes 25% on each transaction by simply hosting the offer. The Giants could out-maneuver StubHub by providing the same exact service, but charging 5% and 10% instead of 10% and 15%, respectively. The lower fees would be necessary to attract customers away from the super-convenient StubHub. The Giants aren't in the ticket resale business, and wouldn't need to charge a large commission here in order to come out on top in two ways.
First, by charging lower resale fees they could attract many of StubHub's customers and shrink the resale market, which has been cutting into their ticket revenues. This would both generate revenue in the form of transaction fees, and also cut down on out-of-house reselling. Second, they could scrap the idea for large-scale dynamic pricing, and wouldn't have to worry about a negative fan reaction. Teams have been complaining about the secondary market for tickets for a while. Instead of complaining about it, why not just create your own market, and control it that way?
What do you guys think? Would this be something worth exploring for MLB teams, or is it still not capturing something?
Dan Novick is a lifelong Yankees fan, and still gets the chills every time Enter Sandman plays from the Yankee Stadium speakers. He welcomes comments and questions via e-mail.
The Cubs got into the secondary market a few years ago. Of course, it was by means of a ticket broker office they opened up across the street from Wrigley with only paperwork tracing it back to the Cubs.