Cornering the market on ticket sales

An 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?

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Comments

  1. snley said...

    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.

  2. Dan Novick said...

    I bet you StubHub realized teams like the Cardinals could do this and reached an agreement before it got very far, essentially saying to them, “we’ll take this off your hands.”

  3. SomeGuy said...

    Pretty sure MLBAM was doing this on behalf of teams a few years back (read: MLBAM owns the internet, as far as MLB teams are concerned), but realized a handful of things, greatest of which was that having StubHub do this and just collecting a percentage from them was waaaayyyy more efficient.
    Teams cannot do much of anything, where incremental revenue is concerned anyway, on their own on the web (exaggeration, but more slight than gross). Up-front ticket sales are the exception, hence this crazy (but is it just crazy enough Jerry that it blew your mind!?) system the Giants have in place.
    To suggest individual clubs set up secondary marketplaces that directly compete with StubHub (an MLBAM cash cow) is fruitless conjecture. Great idea, not gonna happen.

  4. Tom M. Tango said...

    Whether MLB or MLBAM owns a ticket scalper company, or whether they partner with them, makes no philosophical difference.  They just have to figure out which way makes the most sense for them.

  5. Alex Pedicini said...

    Interesting idea Dan. The Red Sox have something along these lines in place for their Green Monster seats. Basically those tickets are auctioned off before each series to the highest bidder. Obviously more important games receive higher bids than other games.

  6. Gerry said...

    “Price discrimination is completely legal and ethical, by the way. Car dealerships do it all the time.”

    I believe this is the first time that the word “ethical” and the phrase “car dealerships” have ever been linked.

  7. Gregg said...

    Hi, Dan. I am following up on behalf of the Executive Customer Care Department at StubHub. We read your comment and appreciate the opportunity to clarify some information about StubHub. We are an online secondary marketplace website where fans are able to purchase tickets from individual sellers. We are not a Box Office and have no direct affiliation with any venue. Sellers are able to set their own prices for tickets listed on our site and market demand by our buyers drives both pricing and competition between our sellers. As part of our User Agreement, sellers are responsible to comply with all local, state, federal and international laws regarding the use of the site and the selling value of the tickets. StubHub does not monitor, obtain or have any knowledge of the face value of the tickets listed on our site. Regarding our commission and buy fee, this helps us maintain a safe, secure place for fans to buy and sell tickets. Our patent-pending FanNetwork™ system ensures a convenient, reliable service our users can trust. Sellers on StubHub receive the following unique benefits: 1) An open marketplace to accommodate the greatest number of potential sellers and offer the widest possible selection of tickets, which means more buyers; 2) No listing fees; 3) The ability to choose your ticket price and change it any time; 3) National marketing programs to help market tickets and reach more buyers; 4) Privacy protection. We don’t reveal your identity to buyers or prospects; 5) Toll-free customer service, seven days a week, to answer any questions; 6) Free delivery directly to the buyer and 7) Guaranteed payment for all fulfilled orders. As this forum discussion continues, I hope that we have provided a better understanding of our site. If you are interested in discussing this directly, please send us an email to
    .  We look forward to assisting with any questions or concerns that you may have. Gregg Dispenza, StubHub Executive Customer Care

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