Tuesday, August 19, 2008

Convenience Fees, Not So Convenient to the Baseball Fan


Chris Jaffe has posted his second annual review of “convenience” and “order processing” charges of major league baseball teams. The previous installment was called “The $17 ticket that cost $25” describes these charges, where when you try to purchase a $17 ticket online you find $10 worth of additional charges to print your own tickets at home. These extra costs can be avoided by buying tickets at the gate.

The charges range $11.25 for the Red Sox to $2.00 to the Brewers. So what is the economics behind these charges? Let’s go to the supply and demand curves.

We can basically ignore the supply curve. The local MLB team is a monopoly (or close). Plus the additional cost of selling one extra ticket online is close to zero. All teams likely pay the same to Ticketmaster to receive the tech support to sell tickets online, so demand is driving the price differences between teams.

So why is Red Sox Nation paying 5 times as much as the Brew Crew? Well, these charges can be avoided by purchasing the tickets at the stadium on the day of the game, but the Red Sox are selling out basically every game so the convenience fee is actually a way to charge a higher price to guarantee tickets.

But, the Brewers are also selling out games this year and their $2 charge is half of the Texas Rangers the next lowest team. So the Brewers are a bit of an outlier. But generally, teams that did better last year had higher convenience charges. See the chart to the side. A regression analysis shows for each extra game a team won in 2007 that their 2008 convenience charge was 5 cents higher (P-value = .11). This should not surprise us since better teams are more likely to sell out and people pay the convenience charge to avoid not getting tickets.

But why are the Brewers at outlier? I’ll e-mail them and see.


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3 comments:

Dan said...

Doesn't the fact that there are many close substitute goods to baseball tickets somewhat complicate this? Of course the closeness of the substitute has something to do with the strength of loyalty to the team (Boston and St. Louis fans, for instance, probably have less elastic demand for home-team tickets than, say, Houston or Tampa Bay fans), which is a function of the "storiedness" of the franchise?

So could you somehow control in your regression for strength of loyalty (say, by finding average sales per capita of team-branded products in the relevant metro areas)? And would it also be possible to control for the substitutability of the baseball tickets? (E.g., by using a dummy variable for another MLB team within 100 miles?)

Be interested in your reactions to my random thoughts on this...

Seth Gitter said...

dan,

I was being lazy, there are substitutes in fact I wrote a paper about it.

Other work on baseball has shown that when new teams move in close to old MLB teams the old team's attendance goes down. Nationals decrease Orioles attendance.

I show in the paper linked below. That when MLB teams raise their prices, people go to more minor league games. So the P-nats are a substitute for the nationals.
http://pages.towson.edu/trhoads/Gitter%20and%20Rhoads%20WEA08.pdf

loyalty and baseball history would have to be controlled for too. If I did all that I would probably have a paper.

Josh Hall said...

You often can buy tickets at the stadium for future games, at least you can in hockey. When I lived in Columbus the Blue Jackets held open practice during the lunch hour and you could go down, watch practice, and pick up surcharge free tickets for that nights (or future) games.

Not sure if all major league sport teams have regular box office hours.

Josh