Consumer Options and Forward Pricing: Theory And Empirical Analyses In Ticket Markets

Sports markets are lucrative. Most sports markets have one or more elimination-style tournament in which individuals or teams compete. Currently tickets to these games are sold in advance. Inherently, in these games there is uncertainty regarding the teams that will ultimately participate in the event. Because tickets are sold in advance, fans who want to wait and buy tickets after they know which teams are playing in the game need to head to scalpers. Since scalpers can charge exorbitant prices, many fans are irate at the leagues for not doing anything about them. Further, the presence of scalpers suggests that the leagues are leaving money on the table. Thus, it seems that there are reasons why both fans and leagues might not be happy with the current practice. In this dissertation I propose alternative pricing mechanisms which give the fan the choice of waiting before buying the ticket while simultaneously giving the league more profits. Essay 1 suggests that the league offer consumer options. Initially defined in the finance literature, buying an option confers a right, but not an obligation, to follow through on some course of action. I examine this pricing mechanism both from the fans’ and the league’s perspectives. Essay 2 is aimed at empirically understanding fan behavior in a real-life forwards market for sports tickets. A consumer forward is different from a consumer option in that it is team-specific (i.e., if the team for which the forward is bought does not make it to the final game, the forward expires). Given that forwards expire, it becomes crucial to pick the right team when buying forwards. I study the problem of how fans can maximize their chances of attending the final game while simultaneously minimizing their cost and suggest recommendations based on fan type. Essay 3 studies the concept of consumer forwards using an analytical model and experimental data. Further I contrast the profitability of option versus forward pricing. Taken together the three essays suggest alternate ways of pricing tournament tickets and assess their profitability for the league while simultaneously understanding fan behavior in these markets