By David Butler
The sports industry provides economists with great examples of non-uniform pricing. Previously I considered this in light of the price of the England Shirt for the 2014 World Cup.
Theoretically, non-uniform pricing occurs when a monopoly or price setting firms with market power adjusts the price of a product based on information they hold on consumer demand. By setting one price a firm can lose out and incur what economists refer to as a deadweight loss,. This is an economically inefficient scenario as a set of consumers can be made better off while not making others worse off. So by using infomation on demand and changing prices (or by having some form of non-linear pricing stratregy) for a set of customers a firm can increase its revenue. Economists generally favour non-uniform pricing as the inefficiencies usually associated with monopolies can be lowered and the welfare of consumers can be raised. The most common type of non-uniform pricing is price discrimination. Essentially, this practice involves charging different prices to different customers for the same product.
When it comes to entering sport stadiums the complexity of price discrimination is remarkable. We’re used to seeing different but simple price structures for Children, Students, Adults and OAPS for many products and services but when it comes to the sports matches the strategy clubs apply are sophisticated to say the least.
I've taken Tottenham Hotspur's Premier League prices as an example - I’m sure its very similar for other elite clubs throughout sport. Strictly speaking the club have a monopoly on their product as I can’t see Tottenham live anywhere else. While one could substitute to Arsenal, Chelsea or Liverpool etc. their monopoly rights are usually conferred to them by the passion and ideology of the supporters.
Below is the price structure. Firstly, there are 14 different types of seats you can access at White Hart Lane depending on your age (under 18 or over 65) and your preference for a view of the product. The better the view, the more you pay. Secondly there is three different types of ‘match categories’ that price discriminate in terms of the quality of the opposition. Just like your seat, there is a positive relationship between opposition quality and the price you pay. Having prices range from 17.00 to 81.00 pounds over a season squeezes consumer surplus and White Hart Lane is generally sold-out.
The sports industry provides economists with great examples of non-uniform pricing. Previously I considered this in light of the price of the England Shirt for the 2014 World Cup.
Theoretically, non-uniform pricing occurs when a monopoly or price setting firms with market power adjusts the price of a product based on information they hold on consumer demand. By setting one price a firm can lose out and incur what economists refer to as a deadweight loss,. This is an economically inefficient scenario as a set of consumers can be made better off while not making others worse off. So by using infomation on demand and changing prices (or by having some form of non-linear pricing stratregy) for a set of customers a firm can increase its revenue. Economists generally favour non-uniform pricing as the inefficiencies usually associated with monopolies can be lowered and the welfare of consumers can be raised. The most common type of non-uniform pricing is price discrimination. Essentially, this practice involves charging different prices to different customers for the same product.
When it comes to entering sport stadiums the complexity of price discrimination is remarkable. We’re used to seeing different but simple price structures for Children, Students, Adults and OAPS for many products and services but when it comes to the sports matches the strategy clubs apply are sophisticated to say the least.
I've taken Tottenham Hotspur's Premier League prices as an example - I’m sure its very similar for other elite clubs throughout sport. Strictly speaking the club have a monopoly on their product as I can’t see Tottenham live anywhere else. While one could substitute to Arsenal, Chelsea or Liverpool etc. their monopoly rights are usually conferred to them by the passion and ideology of the supporters.
Below is the price structure. Firstly, there are 14 different types of seats you can access at White Hart Lane depending on your age (under 18 or over 65) and your preference for a view of the product. The better the view, the more you pay. Secondly there is three different types of ‘match categories’ that price discriminate in terms of the quality of the opposition. Just like your seat, there is a positive relationship between opposition quality and the price you pay. Having prices range from 17.00 to 81.00 pounds over a season squeezes consumer surplus and White Hart Lane is generally sold-out.
Tottenham Hotspur - Premier League Prices 2014/2015
The interesting thing is that if costs allow it firms may have an incentive to make their products imperfect. if you ever wondered why clubs have ‘bad views’ in their stadium, economics may hold the answer. They may be intentionally 'bad' relative to others so clubs can price discriminate. This is what’s called ‘product sabotage’ and happens in many industries. As Tim Harford explains here the best way to make a slow printer is to make a fast one and put a chip in to slow it down! Food for thought for Tottenham Hotspur as they look to build a new stadium.
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