Study_GuideEconOfSports

# Study_GuideEconOfSports - I The Franchise 1 Who is the...

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I. The Franchise 1) Who is the franchise? i. The owners as individuals ii. Purpose to maximize profit for the team 2) Revenue i. Ticket Sales 1. Luxury seats keep money 2. Ticket pricing strategies (bundling, price discrimination) Ticket prices in monopolist market 3. Examples of how franchises effect the demand curve 4. Demand = P = 100-2Q Capacity = 15 5. Algebraically: P* = 70 a. Q* = 15 b. Q* = 25 c. P* = 50 d. TR = PQ = (100-2Q)(Q) = 100Q – 2Q 2 e. MR = dTR = 100-4Q f. MR = MC which is 0 until they hit Q* 6. Price discrimination – used to maximize profits a. 1 st degree price discrimination i. Who wants to go for \$5? \$2? \$1? – can only do once. Charge everyone their marginal willingness to pay. b. 2 nd degree price discrimination i. Charge different prices based on quantity of the good. ii. Group Rates – Season Tickets (if you buy 20 tickets then you will pay less) NOT bundling because bundling would be combining different goods. c. 3 rd degree price discrimination

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i. Charge different prices for different parts of the market – Senior Citizen Discount, Student Discount, Ladies Identify, Illegal ways(can’t discriminate base of race and gender) d. Bundling – packaging different goods together i. Disney world – Airfare, park, and hotel together; Free hot dog with tickets 7. Promotions used to increase profits a. Add bobble head nights, fireworks night, increases demand, Jordan comeback 8. Winning increase demand which increases revenue 9. Star athlete - increases demand, helps road attendance more 10. Lower P*? Yes to sellout or to prevent blackout but only if there is enough gains elsewhere 11. How to determine price and quantity in different settings (i.e. competitive
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