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25 Jan 2019

During a five-year period, the ticket sales for the football team have increased 45% whereas the average ticket prices have increased by 70%. Do these changes imply an upward-sloping demand curve? Explain.

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Related questions

4. The Spokane Indians, a minor league baseball team affiliated with the Texas Rangers, are trying to predict sales for the upcoming season and are considering changing ticket prices.(10)

a. The elasticity of ticket sales with respect to the size of the Spokane population is estimated to be 0.7. Please briefly explain what this value of 0.7 means. If the population of Spokane increases from 210,000 to 212,500, what is the predicted sales increase?

b. Last season, the typical fan paid an average of $10 per ticket. The price elasticity of demand is -0.6. Management is considering raising the average price of tickets to $11. Compute the predicted percentage change in tickets sold. Would you expect ticket revenue to rise or fall?

c. The typical fan also consumes $8 worth of food and beverages at a game. Thus, at the original $10 average ticket price, each admission generates $18 in total revenue for management. Would raising ticket prices to $11 increase or reduce total revenue? Please provide enough detail to demonstrate your understanding. (Hint: if you want, you can assume a certain number of tickets sold per game, say 5,000. However, the precise number of tickets need not be specified to answer the question.).

5. Increasing returns to scale for a firm is shown graphically by (A) a horizontal long-run average cost curve. (B) a vertical long-run average cost curve. (C) an upward-sloping long-run average cost curve. (D) a downward-sloping long-run average cost curve. (E) none of the above; returns to scale have nothing to do with the shape of the long-run average cost curve. Answer:

Professional baseball teams earn substantial revenues through ticket sales. To maximize profit, they offer significantly lower ticket prices for children (whose demand is elastic) than for adults (whose demand is inelastic). This discount may be as much as 50 percent.
 
If this type of price discrimination increases revenue and profit, why don't teams also price discriminate at the concession stands? Why don't they offer half-price hot dogs, soft drinks, peanuts, and Cracker Jack to children?
 
The answer involves the three requirements for successful price discrimination. All three requirements are met for game tickets: (1) The team has monopoly power; (2) it can segregate ticket buyers by age group, each group having a different elasticity of demand; and (3) children cannot resell their discounted tickets to adults.
 
It's a different situation at the concession stands. Specifically, the third condition is not met. If the team had dual prices, it could not prevent the exchange or resale of the concession goods from children to adults. Many adults would send children to buy food and soft drinks for them: Here's some money, Billy. Go buy six hot dogs. In this case, price discrimination would reduce, not increase, team profit. Thus, children and adults are charged the same high prices at the concession stands. (These prices are high relative to those for the same goods at the local convenience store because the stadium sellers have a captive audience and thus considerable monopoly power.)
 
Finally, price discrimination often occurs in international trade. A Russian aluminum producer, for example, might sell aluminum for less in the United States than in Russia. In the United States, this seller faces an elastic demand because several substitute suppliers are available. But in Russia, where the manufacturer dominates the market and trade barriers impede imports, consumers have fewer choices and thus demand is less elastic.
 
 
First, give your own thoughts on the above analysis of the concept of Price Discrimination. Second, give some concrete examples from your own life where you have been confronted by situations of Price Discrimination. Finally are there some forms of Price Discrimination that should be illegal?
 
 

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