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Inelastic sports pricing and risk

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  • Andersen, Per
  • Nielsen, Martin

Abstract

The empirical sports economics literature finds that, seemingly inconsistent with rational behavior, sports teams price in the inelastic part of the demand curve. This paper shows that this pricing strategy may in fact be consistent with the rational behavior of a risk averse sports team. To show that, we develop a static model where a risk averse sports team faces a stochastic demand and maximizes its expected utility of profits. The result of the model is pricing in the inelastic range of the demand curve. Furthermore, using comparative statics we show that increased fixed costs lower the price charged by the sports team.

Suggested Citation

  • Andersen, Per & Nielsen, Martin, 2013. "Inelastic sports pricing and risk," Economics Letters, Elsevier, vol. 118(2), pages 262-264.
    • Handle: RePEc:eee:ecolet:v:118:y:2013:i:2:p:262-264
    DOI: 10.1016/j.econlet.2012.10.025
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    References listed on IDEAS

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    1. Sandmo, Agnar, 1971. "On the Theory of the Competitive Firm under Price Uncertainty," American Economic Review, American Economic Association, vol. 61(1), pages 65-73, March.
    2. Rodney Fort, 2004. "Inelastic sports pricing," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 25(2), pages 87-94.
    3. Anthony C. Krautmann & David J. Berri, 2007. "Can We Find It at the Concessions? Understanding Price Elasticity in Professional Sports," Journal of Sports Economics, , vol. 8(2), pages 183-191, May.
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    Cited by:

    1. Andersen, Per & Vetter, Henrik, 2015. "Pricing as a risky choice: Uncertainty and survival in a monopoly market," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 9, pages 1-22.
    2. Budzinski, Oliver & Feddersen, Arne, 2015. "Grundlagen der Sportnachfrage: Theorie und Empirie der Einflussfaktoren auf die Zuschauernachfrage," Ilmenau Economics Discussion Papers 94, Ilmenau University of Technology, Institute of Economics.
    3. Roșca Vlad I., 2018. "The Influence of European Cup Performances on Domestic Stadium Attendances in Romanian Football," Proceedings of the International Conference on Business Excellence, Sciendo, vol. 12(1), pages 875-884, May.
    4. Andersen, Per & Vetter, Henrik, 2015. "Pricing as a risky choice: Uncertainty and survival in a monopoly market," Economics Discussion Papers 2015-53, Kiel Institute for the World Economy (IfW Kiel).
    5. Xin Meng & Zilin Tang & Leonard F. S. Wang, 2023. "Sport tickets pricing strategy with home team's crowd effect," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(2), pages 839-847, March.

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