However, here\'s the issue. Decades of research has shown that most major profes

Question

However, here's the issue. Decades of research has shown that most major professional sport teams (who are monopolists) and leagues (Super Bowl tickets, for example) tend to price in the inelastie portion of their demand curve. Essentially, what this means is that they are "underpricing" their product - in other words, they are leaving "money on the table". If they charged more per ticket, they would increase revenues. We see evidence of this underpricing by oking at the secondary market, where ticket re-sellers (like Stul example) are able to sell tickets to high-demand events Super Bowl Final Four, Red Sox games, almost all NFL games, etc.) at pices well above the face-value of those tickets (which is the dollar amount that the teams/leagues receive). This underpricing has also been found to exist in other parts of the entertainment industry - for example, many high-demand concerts appear to underprice their tickets, given the demand. Any thoughts as to why this underpricing might occur? Are teams/leagues/concert promoters not profit-maximizers? Or, are there other factors at work here?

Explanation / Answer

There can be many reasons as to why the most major professional sports team tend to price in the inelaatic portion of the demand curve. To make this concept more understandable, I will explain the major reasons as to why the tickets are underpriced. Firstly, it is not true that teams/leagues/concert promoters are not profit maximizers. Unlike the secondary market ( where tickets are resold) , Box Offices or major professional sports team aim at long term profit maximization i.e. if they sell their tickets at a lower price now then they would gain product satisfaction which will lead to consumer surplus in the future. This will increase their revenue and goodwill in the coming years. On the other hand , ticket resellers aim at selling tickets on a one time basis . Also, they have no concerns regarding their own goodwill. Therefore, they sell the tickets at a price more than the face value of the ticket in order to maximize their short term profits.

Now, the most important factors at work which pushes the major sports team to underprice their tickets can be stated in the followings points:

1) It brings negative impression to the team or the artist concerned when their match/concert is NOT "sold out". This can be stated as the main driving force behind the underprising of the tickets because when tickets are available at a lower price , many fans from different income groups (from blue collared workers to white collared officers) can buy them. The concept of being "sold out" also brings satisfaction to the consumers of the tickets because they are tending to maximise their utility by buying the tickets of the most demanded concert or match.

2) With more consumers, the producers earn a lot from the add on charges of the concert/match like parking cost, refreshments , concessions, and the likes. This adds more to the profits of the producers.

3) Also, NFL's blackout rule can also be considered as one of the important factors for lower price of the tickets. The rule says that those match/concert cannot be aired on television which is not "sold out". This puts the team/artist in the bad picture . Therefore, they resort to underpricing their tickets so that they remain in the good books of their fans and increase their fan base .

In the end, it can be said that underpricing of tickets can be seen as a reaction to the customer behaviour and actions. In all , the more you serve your customers the more profit you will earn in the future.

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