This Document Contains Chapters 1 to 3 Berri Chapter 1 It’s Just Supply and Demand Objectives • To appreciate the importance of math in sports economics by applying the Marshallian Method. • To understand the fundamentals and the contributing variables of the Marshallian Cross, the standard supply and demand model. • To differentiate between deductive reasoning and inductive reasoning and to understand when it is appropriate to use each methodology and how the two methods work in tandem. Outline I. Chapter objectives II. In sports, perception and reality don’t always match III. The Marshallian Method IV. Marshall and the demand curve a. Use mathematics as a shorthand language till your model yields conclusions. b. Translate into English and illustrate by examples that are important in real life V. Just a matter of time VI. The Marshallian Cross VII. What determines ticket prices? VIII. “The Decision” teaches us how market impediments have unintended consequences IX. What is the “right” price? X. The many lessons “The Decision” teaches XI. Deductive versus inductive reasoning Teaching Tips In sports, perception and reality don’t always match Creating Student Interest • Since this will, in many cases, begin the course, start by asking all students to tell about their sports interests. What sports have they played, and what teams do they follow? Alternatively, consider asking students to name an economic issue pertaining to sports. Use the topics they bring up such as stadium funding, player salaries and ticket prices to identify areas of the sports economics literature. Point out that economic theory and empirical methods better inform the discussion. Presenting the Material Highlight the history of sports and the transition from being a leisure good of the wealthy to one consumed by all classes. Because sports are so popular, many people have opinions about sports, such as the relationship between ticket prices and players’ pay. As economists, we have tools to analyze these thoughts for accuracy. Emphasize the use of empirical methods to test otherwise purely theoretical sports economics hypotheses. (e.g. Did the salary cap help or hurt the NFL as a sport?) The Marshallian Method Creating Student Interest • Ask the students to name a figure from history and explain what they learned from him or her. Is it important to learn from those who went before us? Presenting the Material • This section presents a good opportunity to introduce some of the key people of economic thought and to convey the notion that the study of sports economics is derived from the basic principles of the discipline. In our study of sports, we need to stand on the shoulders of these great thinkers who went before us. This course will require students to interpret many numbers and formulae. The Marshallian Method illustrates the importance of math as a tool to help us understand what we observe. Marshall and the demand curve Creating Student Interest • Ask a couple of students to name something that they buy frequently. Ask them what would happen if the price of this item doubled. What other factors would influence what they buy and how much they buy? Presenting the Material • Using the answers given by the students, translate this information into a downward-sloping demand curve. Emphasize that ceteris paribus, the demand curve represents the relationship between own price and quantity demanded based on a person’s decisions about what is best for them, given their preferences, prices and income. Show that the demand curve can also be written as an equation. After the inverse relationship between price and quantity is understood, transition into the other factors that influence demand: population, income, and quality. Explain how these elements are present in the demand for sports as well. Review how these elements shift the demand curve. Just a matter of time Creating Student Interest • If possible, bring a baseball card to show your class. Ask them what expenses the card manufacturer had in producing the card. Ask them the retail price of baseball cards at a store. Then ask: if the price of the cards doubled, would the manufacturer have an incentive to produce more cards? Presenting the Material • Using the answers by the students, construct an upward-sloping supply curve. Show how this can be written as an equation. Describe the Law of Supply. Using the Honus Wagner example, show what a fixed supply curve looks like. Emphasize that the supply curve is the upward sloping part of the Marginal (unit) cost of production curve of the firm. The Marshallian Cross Creating Student Interest • Ask the students if anyone ever owned a replica jersey of a professional athlete. Which player, and why that player? Have them think about whether they were alone in buying that type of jersey or if other people did so as well. Ask them which NFL and NBA players’ jerseys would sell the most. Presenting the Material • The buying and selling of a jersey bring together buyers and sellers. Using the Tim Tebow jersey example, review what a market looks like using a Marshallian supply and demand graph. Continue this example and show the shift in supply that would occur if both Reebok and Nike sold his jersey. Emphasize the importance of finding the equilibrium price and quantity using supply and demand. What determines ticket prices? Creating Student Interest • With a show of hands, take a survey of the class’s opinions about an important question in sports economics: do tickets to a sporting event cost a lot because of players’ salaries, or are players paid high salaries because of the high ticket prices? Presenting the Material • Using a fixed supply curve, such as that shown in Figure 1.3, illustrate how ticket prices for a team can be found by finding the equilibrium. Next, show how an increase in demand will increase ticket prices. Mention that since this is demand driven and not cost driven, the students who said that players are paid high salaries because of the high price of tickets were right. “The Decision” teaches us how market impediments have unintended consequences Creating Student Interest • If possible, show a clip from YouTube of LeBron James announcing his decision to take his talents to South Beach. Ask the students why they think he made this choice and if they think he made a good decision. Would they make the same choice? Ask if a star high school athlete deciding on which college to attend would in any way be similar to what James faced. Presenting the Material • Tie together Table 1.1 with Figure 1.7 by illustrating how a salary cap limits the market’s ability to reach an equilibrium. With pay limited by external forces, discuss the non-price competition teams faced in trying to sign James. See if the students can describe non-price competition faced by colleges in recruiting athletes. Be careful to point out that you are assuming a competitive market for players. In fact the market for players’s is not competitive and you have a few buyers facing several different sellers (players). History of the NPF History of the NPF What is the “right” price? Creating Student Interest • When LeBron James moved to Miami, he was paid $14.5 million that next season. Ask your students if he was underpaid. Was he exploited by the NBA? How does society justify paying an athlete that much money? Is his salary an indication of the values of our society? Why or why not? Presenting the Material • The field of sports is ripe for opinion. Sports radio seemingly exists to give opinions about athletes and what teams should or shouldn’t do. Discuss the difference between positive economics and normative economics. Point out to the students how easy it is to slip from positive to normative. The study of sports economics tries to remain in the positive realm and objectively describe what exists. The many lessons “The Decision” teaches Creating Student Interest • Let the students know that understanding markets can also help us understand other aspects of sports: profit maximization, competitive balance, player salaries, player productivity and labor markets, discrimination based on race and gender, college sports, publicly owned venues, and measuring player performance. Presenting the Material • This section is a preview of the topics covered in the rest of the text. You might want to note how many of the topics are interrelated and can affect one another. Deductive versus inductive reasoning Creating Student Interest • The character of Sherlock Holmes was famous for using deductive reasoning. Imagine you were Sherlock Holmes; how would you deduce that LeBron James would leave for Miami? Presenting the Material • Aside from differentiating between deductive and inductive reasoning, it is important to point out that economics is a world of logic and empirical facts -not one of merely opinion. Common Student Struggles Most students will have been exposed to supply and demand in their principles of economics courses. For some, it will have been several semesters since they last worked with the model. As a result, many students will need more than just a casual refresher of the variables that affect the demand and supply curves. How the curves shift and that shape, in the case of the fixed supply curve, will need to be reviewed. A mastery of supply and demand will pay off for students as the course progresses. Talking about sports and studying sports are two different things. Some students will need to understand that economic models and theories will be used heavily to understand what we observe in the sports world. Conversely, some students will see Section 1.4 and the mention of OPS+ and wonder if they’ve gotten in over their head. Those students need to be reassured that there will be several productivity measurements interspersed in the text but that they are included simply as another tool to help us understand what we observe in the sports world. During the discussion of topics in class, students may slip into normative analysis. That is natural because that is what they are exposed to in sports broadcasts. Draw them back toward positive analysis to explore the world we observe. Additional Resources Berri, D., Schmidt, M., & Brook, S. (2006). The wages of wins: Taking measure of the many myths in modern sport. Palo Alto, CA: Stanford University Press. Drayer, J., Shapiro, S. L., & Lee, S. (2012). Dynamic ticket pricing in sport: An agenda for research and practice. Sport Marketing Quarterly, 21 (3), 184–194. Harrington, D. E. (2012). Uncapping ticket markets. Regulation, 33(3). LeBron James Makes His Decision: Miami: https://www.youtube.com/watch?v=RTeCc8jy7FI Lewis, M. (2004). Moneyball: The art of winning an unfair game. New York: W.W. Norton. Marshall, A. (1890). Principles of economics (8th ed.). London: Macmillan. NBA Player Salaries: http://www.espn.com/nba/salaries “The Original Decision” Shaq to LA: https://www.youtube.com/watch?v=-Fak_wv3uoM Veblen, T. (1899). The theory of the leisure class. New York: Macmillan. Handout 1-1 Date_________ Name____________________________ Class________ Professor________________ Years before LeBron James left Cleveland for Miami, Shaquille O’Neal left Orlando for Los Angeles. In 1996, Shaq turned down a seven-year, $119 million deal to go play for the Lakers. Using a Marshallian Cross, analyze why O’Neal left Orlando. (Hint: use two demand curves, one for Orlando and one for Los Angeles.) Why would there be a difference in the demand curves? Answer: The Lakers were able to offer O’Neal more money by manipulating their roster to create available money under the salary cap. The Lakers play in a much larger market than Orlando, and so their demand curve is greater than that of Orlando. This demand curve is reflected in the team’s willingness to pay a higher salary for a star player. But as we’ll see in Chapter 2, a larger market does not always mean a larger demand. Handout 1-2 Date_________ Name____________________________ Class________ Professor________________ Each year before the Super Bowl, it seems there are always news reports about how much scalpers are getting paid for tickets to the game. Use a Marshallian Cross to analyze this market. How does the concept of a price ceiling help describe the market for Super Bowl tickets? What role do scalpers play in restoring the market to equilibrium? Answer: The concept is similar to that seen in Figure 1.7. If the price initially offered for tickets by the NFL is too low, then a price ceiling is created. In this case, there is a fixed supply of tickets to the game. Scalpers (or firms like Stubhub) will offer tickets at prices higher than the initial price. As the price rises, the number of people willing to buy tickets decreases, until the market equilibrium is found. Thus, scalpers help the market move to an equilibrium. Berri Chapter 2 Market Size and Wins Objectives • To examine the relationship between market size and outcomes using a deductive approach. • To examine the relationship between market size and outcomes using an inductive approach. • To be able to interpret and explain wins in sports. • To begin to develop an understanding of the criteria for evaluating statistical models. Outline XII. From the Law of Demand to team revenue XIII. Debating team costs XIV. Why do the Yankees dominate? XV. Market size and wins: The data from MLB XVI. Modeling market size and wins in professional sports XVII. Modeling payroll and wins in professional sports XVIII. A basic model of wins in professional sports XIX. A simple guide to evaluating empirical models a. The theoretical foundation of the model b. Specifying the model c. Statistical significance and economic significance d. Explanatory power e. Robustness of results f. Prior beliefs? Teaching Tips From the Law of Demand to team revenue Creating Student Interest • Ask some students if they have a favorite professional sports team. Then, ask them if this team was completely their choice or was also a favorite of their parents or family. Ask if that team would have a large or small demand for tickets to see the team play. Ask if they can identify which variables might affect the demand for that team. Try to direct the discussion toward market size, team quality, and stadium size. Presenting the Material • Begin with a review of a demand equation. Extend that into a total revenue equation, and then discuss how maximizing revenue would be of interest to a team. Remind students that the key assumption here is that teams have market power. That is why price is a function of quantity. Also mention that this team is a simple monopolist who charges a single price to all customers. Teams often charge different prices for general admission, club seats and luxury box seats. Mention that the model can be extended to deal with a discriminating monopolist. Table 2.1 shows how total revenue grows and then falls as price continues to fall. Once total revenue is determined, move to the determination of marginal revenue. Debating team costs Creating Student Interest • Ask your students to consider the costs of putting on a game. These costs in general can be classified into venue costs, player costs, general and administrative costs and travel expenses. Next, ask your students which of these costs are fixed costs and which are variable costs. If the game is not sold out, what is the marginal cost of allowing one more fan to come in and watch the game? What costs would the team incur from that one fan: picking up peanut shells, the extra water from a flushed toilet? There is not much additional cost. Presenting the Material • Show Figure 2.3, where the marginal cost of an additional fan is basically zero. As an alternative, then show Figure 2.4, where marginal cost rises as quantity increases. Graphically show that profits are maximized by producing the quantity where marginal cost = marginal revenue and then by pricing off of the demand curve. Figure 2.5 shows this profit-maximizing graph. Mathematically, you can then use the previous equations to solve for the profit-maximizing quantity and price. Why do the Yankees dominate? Creating Student Interest • Since you’ve asked your students who their favorite teams are, now ask if they have teams that they hate. Ask them to explore the origin of this hatred. Is it a question of arrogance or jealousy? Is it competitive hometown pride that fuels their dislike for the other team? Next point out that while fans dislike the rival team the Tigers need the Yankees to show up in order to put on a game. Point out that while teams are rivals on the field they are also partners in producing a game. This may be unique to the production of sporting contests. Presenting the Material • This section uses deductive reasoning that presents theories of why the Yankees may have enjoyed continued success: a bigger market creates more revenue, which allows the team to acquire better talent, which translates to wins. Market size and wins: The data from MLB Creating Student Interest • How valid is it to assume that market size leads to higher levels of success? This is a quantitative question and is one that we can measure and explore. Presenting the Material • Figure 2.7 shows the data points of Table 2.4 along with a trend line. The trend line is upward-sloping, which indicates that in baseball there is a direct relationship between market size and team success. But is this true in other sports? Modeling market size and wins in professional sports Creating Student Interest • Tell the students that if we are going to measure the relation between market size and team success, we are going to need some rules for doing so. This section will give us an introduction to determining if the relationships we see are statistically valid or not. Presenting the Material • Explain that the regression line is the line of best fit. It is the line that passes through and comes close to as many points as possible. Explain what we mean by regression models and what we are trying to understand by using them. The four essential elements to present are coefficients, t-statistics, p-values, and R2. Tables 2.5 through 2.8 all examine market size and team winning. Market size is only significant in baseball Modeling payroll and wins in professional sports Creating Student Interest • Going back to an earlier discussion, ask your students how we can model whether higher teams that have higher payrolls actually do win more games. What two variables do they want to include? Which is the independent variable? Presenting the Material • Tables 2.9 through 2.12 all show statistically significant payroll variables. The conclusion is that having higher payroll (assumedly for better talent) does indeed win more games, but this impact is not equal across all sports. A basic model of wins in professional sports Creating Student Interest • Ask your students: if they were general managers of a team, would they like to pay players based on the contribution the players make in winning games? Assuming they agree to that, tell them it first needs to be discovered why teams win games. Presenting the Material This section moves from univariate to multivariate analysis. The reason for multivariate analysis is to avoid omitted variable bias. Briefly explain you’re your coefficients will be unreliable if you omit relevant variables from the model. Using points for and points against, explain the statistical significance of each variable. Point out how increasing the number of variables increased the R2 value. Remind students that the Adjusted R2 value corrects for this issue. A simple guide to evaluating empirical models Creating Student Interest • Ask your students if, based on the R2 values, they buy the relationship between runs scored, runs allowed, and team wins. If they do, then ask them what they think about a conclusion by Levitt and Dubner in the book Freakonomics that the legalization of abortion affects the rate of violent crime. Tell them their model had a high R2. Presenting the Material • Let the students know that a high R2 does not mean that we have a great model. This section presents six areas to consider when deciding whether to give credibility to a model: a good theoretical basis, the specification of the model, the limits on statistical significance, the limits on explanatory power, the consistency of findings from other studies, and controlling our own bias from prior beliefs. Common Student Struggles Students who are quantitatively weak will be interested in the topic but may shy away from the use of multivariate models. Even students who have no aversion to math may not have had a statistics course yet, and so to them this is a foreign land. Since this is a critical chapter for understanding the material in future chapters, take your time with it and make sure that students are on board with the topics and terminology. Likewise, some students may find the transition from the demand curve to finding the maximizing price and quantity difficult. An understanding of the needed steps should be reinforced. The problems at the end of the chapter will provide needed practice with these topics. Remind your students that the goal is to explain what we observe. We’re not asking them to do an econometric study, only to be able to interpret the results. Given that, one takeaway from this chapter is that market size only helps explain team wins in the sport of baseball. Team payroll helps explain team wins across the four sports studied but does so unevenly across leagues. Additional Resources Berri, D. J. (1999). Who is “Most Valuable”? Measuring the player’s production of wins in the National Basketball Association. Managerial and Decision Economics, 20(8), 411–427. Ferguson, D. G., Kenneth, G., Stewart, K. G., Jones, J. C. H., & Le Dressay, A. (1991). The pricing of sports events: Do teams maximize profit? The Journal of Industrial Economics, 39(3), 297–310. Glossary of basketball statistics: http://www.basketball-reference.com/about/glossary.html McFall, T. (2016). The (peculiar) economics of NCAA basketball. New York, NY: Palgrave MacMillan. NBA player statistics by team lineup: http://stats.nba.com/lineups/traditional/ NBA team efficiency rankings: https://www.teamrankings.com/nba/stat/offensive-efficiency Handout 2-1 Date_________ Name____________________________ Class________ Professor________________ Using the concepts from Section 2.6, suppose you were asked to model how hockey players contribute to their team winning. List at least five variables you would want to include in your study. What type of relationship (positive or negative) would you expect to see with each variable? Are there any variables that you think may have a multi-collinearity problem? Answer: Answers will vary, but some typical variables might include goals scored, goals allowed, assists, whether the player was a defensive player, and time in the penalty box. If the variables are expected to help the team win, we would expect to see a positive sign, and if they are expected to lessen the chances of winning, we would expect to see a negative sign. 1. Variables: Goals scored (+), Assists (+), Penalty minutes (-), Time on ice (+), Plus/minus rating (+). 2. Relationships: Positive for goals, assists, time on ice, and plus/minus; negative for penalty minutes. 3. Multicollinearity: Goals and assists might have a multicollinearity problem. Handout 2-2 Date_________ Name____________________________ Class________ Professor________________ Suppose you read a news story online stating that a recent study showed that 73% of all Americans who died last year ate white bread. Your friend, who also read the story, concludes that to reduce the death rate in the United States, all white bread should be outlawed. Is this inductive or deductive reasoning? What’s wrong with the conclusion, and what does that say about the study? Answer: Because this was a study using statistics and data, the study used inductive reasoning. Your friend extrapolated from the findings of the study using deductive reasoning. Because the theoretical foundation of your friend’s logic is lacking, the conclusions drawn are not reliable. This is an example of inductive reasoning. The conclusion is flawed because it confuses correlation with causation; just because 73% of those who died ate white bread doesn't mean white bread causes death. The study may show an association, but it doesn't prove causation, indicating that the study's findings are being misinterpreted. Berri Chapter 3 For the Money or the Glory? Objectives • To describe the Classic Model of human behavior and utility maximization. • To examine revenue and profits in sports and to contrast the focus on profits in the United States to that in the United Kingdom. • To explore the history of the application of the monopoly model in U.S. sports. • To understand the use of promotion and relegation in international sports to increase competition. • To compute elasticity and to apply elasticity theory to the empirical evidence. Outline XX. Revenues and profits in major professional team sports leagues XXI. Monopoly comes to American sports XXII. Europeans embrace competition XXIII. Elasticity of demand XXIV. Price elasticity and sports a. Teams do not profit-maximize b. Home field advantage c. Public choice story d. Team revenue is not just about the gate Teaching Tips Revenues and profits in major professional team sports leagues Creating Student Interest • Ask your students to imagine that they are the owner of a professional sports team. Tell them that their team could have profits of $20 million in a season, but if they spent some more money on players, they could win the league championship but only have profits of $5 million. Would they be willing to give up $15 million in profits to win a championship? Why? How much are they willing to forego? $20 million? $30 million? At some point students will begin to choose profits over championships. Ask them why they changed their mind from their initial decision. Next, ask them how they would change their answer if winning a championship this year would lead to larger attendance and revenues next year? Be careful to point out that there is a difference in the solution between a static one period profit max problem and a dynamic multi-period profit max problem. Finally, ask your students if owners would rather grow the value of the franchise over simple annual profits, so that when they sell the team they make much more than the sum of the present value of profits over the same time period. Presenting the Material • Tables 3.1 through 3.4 may be eye-opening for some students, as many may assume that all leagues have similar profitability. Compare the total revenue between teams within a league, from highest to lowest. Do the same with operating income. Then, make comparisons between leagues in the areas of revenue and operating income. Point out that while each sport is organized into a professional league, not all leagues see the same business results. Compare the U.S. leagues to the English Premier League using Table 3.5. The U.S. leagues are more profitable because their organization involves using monopoly theory. Monopoly comes to American sports Creating Student Interest • Ask your students to name a monopoly that they encounter in their lives. (This could be the electric company, cable TV, etc.) Ask: when they think about a monopoly, do they think of high prices or low? Follow this up by asking about sports teams. Are their prices considered high or low? What about the merchandise and concessions that are for sale inside the venue? How did sports teams come to act like monopolies? Presenting the Material • This section begins with a history of the origin of the National League in baseball. The practice of paying players and then limiting the pay of these players quickly developed in the league. The league allowed each team to be a local monopoly, which gave the teams freedom from direct competition. Point out that this lack of competition was established by the league and not the market. Europeans embrace competition Creating Student Interest • Did any of your students play soccer while growing up (perhaps some currently play on the college varsity team)? Ask if there was a uniform set of rules for how their games were played (time of the game, number of players, playing rules, etc.). If so, who established these rules? Why would rules help teams in a league? Do we ever see rules change in sports now? • Ask your students their opinion on a rule seen in European soccer, that the worst three teams in a league are kicked out at the end of the year and replaced by the three best teams from a lower division. Could they ever see a process like that working in the United States? Presenting the Material • The development of soccer leagues in the United Kingdom can be compared to the formation of the National League in the United States. Of particular interest is that in the U.K. system, more governmental control resulted in having more competition among the teams. Explain the process of relegation, as it will be a new concept to most U.S. students. Look at Table 3.6 and consider how many teams are located in London. Your students may have interesting opinions on how it would work in the United States if there were, say, five NFL teams in New York. Explore how the lack of competition in the U.S. markets protects teams. Elasticity of demand Creating Student Interest • Write the annual price of tuition at your college on the board. Ask your students how many undergraduates attend your college. Change the number slightly (say, from $25,000 to $26,000) and ask how many students would still be enrolled. Then ask: if the price of going to the movies went up by an equal amount ($1,000) everywhere, would they still go to the movies? Discuss why a $1,000 difference in price in one area might result in a small change in the amount purchased but in another area might result in a very large change. Presenting the Material • The concept of elasticity can be presented along with the rules for increasing total revenue. As examples, tickets to an NFL game could be used for an inelastic demand while replica jerseys could be used as an elastic demand (more competition to sell the same product). Show how raising or lowering the price of a product might be good, or bad, for a business depending on the elasticity of demand. Explain that the goal of adjusting the price is to increase total revenue and also profits. Price elasticity and sports Creating Student Interest • Ask your students: what was the greatest deal they ever got on something they bought? Maybe it was a black Friday sale where the price was ridiculously low. Ask them why a firm would lower the price to that extent, knowing that it wouldn’t be able to make up for the decrease in price with an increase in the quantity and also knowing that total revenue would end up lower. Presenting the Material • Confirm that the students understand that to maximize revenue a team would need to be at the point where elasticity = 1. • Using Tables 3.9 and 3.10, point out how teams in different leagues all seem to have inelastic demands. Since it does not appear that teams have raised prices enough, we are left to ponder why. The motivations could be political (state subsidies), personal (not being a profit maximizer), or based on the fact that ticket sales are only one part of a team’s larger strategy (home field advantage, complimentary goods at the venue). Common Student Struggles Students will have most likely been exposed to the concept of elasticity in the Principles of Microeconomics courses. Bringing the concept into the world of sports requires several examples to make the use of elasticity clear to the students. Often students who grasp the Law of Demand simply conclude that a lower price is always good for a firm because it means selling a larger quantity. The rules of elasticity can be demonstrated here by showing that lowering the price could actually mean less total revenue and profit for a firm. The math involved in calculating elasticity is easy enough, but students will often confuse things and place the change in quantity in the denominator. Repeating the formula each time an elasticity problem is calculated in class will help reinforce the ratio. The two appendices are good for students who enjoy math and wish to see how consumer equilibrium and elasticity are calculated. Additional Resources Carmichael, F., Millington, J., & Simmons, R. (1999). Elasticity of demand for rugby league attendance and the impact of BskyB. Applied Economics Letters, 6(12), 797–800. Dure, B. (2010). Long-range goals: The success story of Major League Soccer. Lincoln, NE: Potomac Books. English Premier League: https://www.premierleague.com/ Krautmann, A. C., & Berri, D. J. (2007). Can we find it at the concessions? Understanding price elasticity in professional sports. Journal of Sports Economics, 8(2), 183–191. Major League Soccer: https://www.mlssoccer.com/ Szymanski, S. (2015). Money and soccer: A soccernomics guide. New York, NY: Nation Books. Vrooman, J. (1995). A general theory of professional sports leagues. Southern Economic Journal, 61(4), 971–990. Handout 3-1 Date_________ Name____________________________ Class________ Professor________________ Go online and look at an upcoming game for a team. Write down the ticket prices for five teams in that same league. Fill out the following table: Team Name Opponent Highest-Price Ticket Lowest-Price Ticket Number of Pricing Tiers A. Is the difference between highest and lowest ticket prices the same for each team? What might explain the variation in prices? B. Which team has the most pricing tiers? Could elasticity be a factor in why one team has more pricing tiers than another? C. Could the opponent being played make a difference in the pricing structure? Could elasticity help to explain the prices for that game? D. All the fans at the game are seeing the same game. How do you explain so many different ticket prices for the same product? Answer: The answers will vary according to the teams chosen and the league. In most cases students will see several different pricing tiers and a wide range in prices. Consider whether the team is in a large market, is a championship contender, or other factors that could affect the elasticity of demand for that market or for segments of that market. Here's the information you requested regarding ticket prices for upcoming NHL games. I found ticket prices for five teams, with the details as follows: A. Variation in Ticket Prices: The difference between the highest and lowest ticket prices is not the same for each team. The variation in prices can be explained by factors such as the team's popularity, the opponent, location of seats, and the day of the week. High-demand games often lead to higher price ranges. B. Pricing Tiers: The Toronto Maple Leafs have the most pricing tiers with 7. Elasticity could be a factor in why they have more pricing tiers—demand for Leafs tickets is very high, so they may segment prices to capture as much revenue as possible from different fan segments. C. Impact of Opponent on Pricing: The opponent can significantly affect ticket prices. Games against popular or rival teams often have higher prices. Elasticity helps to explain this as fans are willing to pay more to see high-stakes or rivalry games. D. Multiple Ticket Prices for the Same Game: Different ticket prices for the same game can be attributed to factors like seat location, amenities, and timing of purchase. Even though all fans see the same game, the experience can vary significantly, which justifies the price differences. The data was collected from various sources including NHL ticket websites and ticket resellers. Instructor Manual for Sports Economics David Berri 9781319106157
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