Question 5: 20 points The University of Oregon employs a tiered-pricing system w
ID: 1132406 • Letter: Q
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Question 5: 20 points The University of Oregon employs a tiered-pricing system when choosing the face value of a ticket to a Ducks football game. That is, the price for the same seat in the stadium varies based on when the game is played and who the opponent is. For example, according to Ticketmaster, in 2018 a row 20 ticket in Autzen Stadium costs: . $10 for the Portland State game $83 for the Washington game $53 for the Standford game a) What type of price discrimination is this? Explain- I'm looking for more than just a vocabulary word here. b) Discuss how this tiered pricing system affects the profit received by the University of Oregon's athletic department compared to a uniform-pricing system. c) What are the welfare effects on consumers? Break it down into 2 categories: hardcore football fans and casual fans.Explanation / Answer
a) This is third degree price discrimination.
Rich football fans have high purchasing power and so they purchase high priced tickets and so they get exploited with this price discrimination.Their intention to show their financial supremacy also gets satisfied. Moreover football fans who have less purchasing power and cannot afford to watch a match get tempted to buy low priced ticket as a result of which company gains and makes profit.
b) Tiered pricing system means providing a product or a service to people at different prices.
Tiered pricing system affects the profit reeceived by the universitycompared to uniform pricing in different ways-
Tiered pricing will help the university to make more money because a tiered pricing attracts customers while a uniform pricing does not attract customers.
When theprice is low many new customers join who later on decide to move to higher price product.
People are always trying to get the best value for their money. So they choose a ticket according to their budget and get maximum value for their ticket.
With tiered pricing the university gives choices to the customers to buy tickets according to their budget which is absent in uniform pricing. The university also ensures that customers watch football in their stadium rather than going elsewhere.
Thus value and choice are the two things that people see while purchasing tickets.In addition ,for football fans ,experience of watching a good match matters and rich football fans do not hesitate to spend more on good matches.So the university makes profit.
c) Hardcore football fans will go to watch football and would never like. to interchange with any other sport.They also have emotional attachment towards their team. So they never hesitate to purchase tickets at very high prices. They are even willing to mortgage their houses to buy high priced season tickets . So demand for tickets is price inelastic for them.What matters to them is the experience of watching a good game and supporting their team. This is their welfare.
Casual fans are not so obsessed with the game of football and for them demand is price elastic.They would like to watch on less priced tickets . So they do not feel a pinch in their budget and that is a welfare effect for them.
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