Based on Alexander (2001) article: "Major League Baseball Monopoly Pricing and Profit-Maximizing Behavior".
1) What are the two broad questions addressed in this paper? What are the conclusions regarding those two questions?
2) What factors are argued to influence marginal revenue (MR) for each franchise? Explain the expected relationships between each factor (variable) and the MR.
3) Answer the following two questions regarding marginal cost:
a) What factors are argued to influence marginal cost (MC) for each franchise? Explain the expected relationships between each factor (variable) and the MC.
b) What is the explained relationship between MC and the quantity of tickets sold?
4) From column 1 of Table 2, interpret the coefficients of the following variables: QUANTITY, INCOME, and GBACK (looking in the appendix of the paper will assist in determining the units of the variables). For income, rather than looking at a $1 increase in income, you will find it more convenient to look at a $10,000 increase in income (thus, multiplying the estimated coefficient by 10,000).
I will interpret PRENT as an example:
A one dollar increase in the price of alternative entertainment in the area (PRENT) is associated with $0.04 increase in the average ticket price for the average MLB team, holding constant the other variables included in the model. Thus, MLB games are seen as a substitute to other forms of regional entertainment.
5) What do the results indicate about the idea that each franchise operates as a local monopoly? Use the results based on Column 1 of Table 2 to address this issue in each of the following areas:
a) The impact of the price of alternative entertainment in the area.
b) Estimated price elasticity in different cities.
c) The effect of the expansion of Exclusive Territories.
6) The average price elasticity of demand is estimated to be -5.19. Does this support that the franchises are operating to maximize profit? Explain your reasoning.
Based on Krautmann and Berri (2007) article: "Can We Find It at the Concessions? Understanding Price Elasticity in Professional Sports".
7) There are issues surrounding the proper measurement of "price" for seats to attend a professional sporting event. What is the most common measurement of price used in the literature examining attendance demand? Second, what is the primary drawback of using this method?
8) Explain why complementary sources of revenue explain why we should anticipate that most studies of attendance demand estimate inelastic pricing of tickets.
9) The overall profit maximizing ticket price is explained to be less than the profit maximizing ticket price if only considering ticket sales (described as ticket discount). In which sport should we observe the largest ticket discount and by how much should tickets be discounted to maximize profits? By how much should tickets be discounted in other major sports, on average, to maximize profits?