Ovunc Yilmaz, Assistant Professor of IT, Analytics, and Operations, Mendoza College of Business, University of Notre Dame
Hayri Alper Arslan, Weatherall Postdoctoral Fellow, Department of Economics, Queen’s University
Necati Tereyagoglu, Assistant Professor of Management Science, Darla Moore School of Business, University of South Carolina
Event organizers are moving from fixed to variable pricing. Although this is theoretically shown to enable organizers to respond to changing demand across events, reports point to somewhat limited implementation due to the unpredictable nature of the popularity of an event and to the unaccounted-for dynamics of the resale market. In this paper, we study the implications of a switch to variable pricing using a quasi-experimental data from the National Football League. Applying a difference-in-differences technique with propensity-score weighting, we find that teams switched to variable pricing sold 2.95% additional tickets per game through the primary market. We provide suggestive evidence that this positive effect is due to the quality-signaling nature of variable pricing for price-sensitive customers. Specifically, we find that variable pricing resulted in higher primary market sales at (i) games in hometowns with lower income levels and higher income diversity, and (ii) unattractive games. We also explore whether variable pricing led to any negative effects through the resale market. With variable pricing, although the number of ticket listings in the resale market went up for unattractive games, customers did not list their tickets at lower prices. This indicates that variable pricing did not lead to cannibalization from resale markets. For attractive games, the minimum listing price in the resale market increased. This shows that the display of popularity through teams’ higher prices increased the option-value for these games, and explains why the primary market ticket sales remained steady for attractive games, even after the increase in prices.