Richard C. K. Burdekin
This article explores several additional concerns about the estimation of an attendance demand function. In particular, it highlights that there are multiple prices and multiple categories of consumer with potentially different demand elasticities to consider in the set of those in attendance at a specific game. It also emphasizes that price is likely to be endogenous when a longer run perspective is taken. The possible effect of changes in team ownership structures in accounting for departures from profit maximization and the complications to the price-attendance relationship posed by such ancillary factors as customer-based discrimination are elaborated. Overall profit maximization and inelastic ticket pricing are by no means incompatible. Inelastic ticket pricing can itself still be consistent with long-term profit maximization or maximization across other revenue streams, such as television fees or concessions earnings. Data limitations seem unlikely to allow any irrefutable measures of price and attendance relationships.
Martin B. Schmidt
This article addresses the censoring of the data that comes about because of capacity constraints on game-day attendance. Using high-quality data about National Football League (NFL) attendance, it explores why and shows how a Tobit estimation technique is superior to OLS for testing propositions about price and demand shift variables in the context of the demand to attend sporting events. The OLS results are almost uniformly lower, in absolute terms, than those produced when the censoring is explicitly recognized. In addition, the marginal significance of several of the variables differs across the two. It is found that game-day attendance in the NFL depends negatively on time and positively on the perceived competitiveness and scoring output of the game. It also increases when the team plays a division rival or when the game is played on Thanksgiving.
The chapter discusses the issue of a possible abolition of network neutrality and the introduction of paid prioritization by residential broadband access networks. In short-run analysis where bandwidth is fixed and in the absence of congestion, network neutrality tends to maximize total surplus. When an ISP violates network neutrality and invests the extra profits to bandwidth expansion, the presence of more bandwidth alleviates the allocative distortion, and can even reverse it. The chapter discusses the network neutrality issue under the assumption of congestion, and characterizes the set of utility functions for which network neutrality is optimal, as well as utility functions where it is optimal to prioritize. The chapter also reviews regulatory rules in the United States on network neutrality.
David Forrest and O. David Gulley
This chapter analyzes the degree to which lottery players demonstrate rational behavior and how they use available information to make decisions about participation and level of play. Overall, players of lotto games act as if they understand the rules of the game and appropriately use relevant information about the games. Exceptions to efficiency are found, but these inefficiencies cannot be easily exploited by bettors.
Loreto Llorente, Josemari Aizpurua, and Javier Puértolas
In pelota matches, which are games with two mutually exclusive and exhaustive outcomes, wagers on the winner are made between viewers through a middleman who receives 16 percent of the payout. This chapter presents an analysis of this betting market under three different concepts of market efficiency widely utilized in the literature. Attention is then turned to another concept of market efficiency with the preliminary analysis of a set of field data. Finally, some insights are provided for future research on hedging strategies in these markets.
Praveen K. Kopalle and Robert A. Shumsky
This article introduces the basic concepts of game theory as applied to pricing. It first presents the basic concepts of game theory by using simple pricing examples. The article then links those examples with both the research literature and industry practice, including examples of how game theory has been used to understand P&G's value pricing initiative and the competitive response. Section 19.2 defines the basic elements of a game and describes the fundamental assumptions that underlie game theory. The remaining sections examine models that provide insight into how games work as well as how competition affects pricing. The models may be categorized according to two attributes: the timing of actions and the number of periods.
A few years back many predicted that new information technology and the common currency in Europe would exert a powerful equalizing pressure on prices of the same good in different locations. This chapter evaluates these predictions with a focus on empirical evaluations. We first survey the literature that links transparency to price dispersion (more transparency is associated with lower dispersion) and to price levels (there is a general presumption that prices fall as they become more transparent but by making collusion easier the effects can be the opposite in some markets). We also survey evidence that many markets are segmented along national borders and present an in-depth analysis of the mechanisms that link transparency and market segmentation. We conclude that greater transparency has important market integrating effects—but only if other barriers that separate markets are low and sellers are not able to endogenously create barriers. Overall the market integrating effects of greater transparency associated with new technology and a common currency in Europe have been minor so far.
Adi Schnytzer, Vasiliki Makropoulou, and Martien Lamers
This chapter conceptualizes fixed-odds horse betting markets as implicit call option markets. The decision-making process of a bookmaker is a model that sets prices under uncertainty, showing that when a bookmaker follows this pricing process built on implicit options the returns will exhibit a favorite-longshot bias. By performing Monte Carlo simulations, option values are generated and a measurement made of the degree of insider trading.
Michael L. Bognanno
This article explores a seven-year period of Professional Bowling Association tournaments to examine the effectiveness of the incentive structure in bringing about effort and performance. It also draws implications from tournament theory regarding the influence of dispersion and skewness in the prize structure on effort. The two most distinct portions of bowling tournaments are studied separately. Estimations are first performed on the qualifying and match play rounds and then on the televised match play, elimination championship round. The trend coefficient indicates that players' scores were generally rising during the sample period. Increases in the number of games in a tournament reduce average scores, perhaps because of player fatigue. There was no evidence found that increases in the percentage of the total prize money going to first place or in the coefficient of skewness increased player scores. Skewness decreased the scores of even those players in contention for top prizes.