A tale of two pricing hypotheses in the NHL

Simple item page
dc.contributor.authorLe Dressay, AndreĢen_US
dc.date.accessioned2024-08-14T21:00:02Z
dc.date.available2024-08-14T21:00:02Z
dc.date.copyright1989en_US
dc.date.issued1989
dc.degree.departmentDepartment of Economics
dc.degree.levelMaster of Arts M.A.en
dc.description.abstractMany economists place a great deal of trust in the rules of supply and demand in the analysis of simple commodity markets. In microeconomic theory, profit maximizing firms interact with utility maximizing consumers in a Walrasian auction where prices adjust over time to balance the demand with supply. When the price mechanism is allotted sufficient time, these rules of supply and demand generally work in most markets. There are however, several examples of markets where the price never seems to adjust to its equilibrium level. For example, the black market price for Cabbage Patch dolls, tickets to the Final Four, or tickets to see Wayne Gretzky and the Los Angeles Kings play in Edmonton, are higher than the prices set by Cooleco, the NCAA, and the Edmonton Oilers respectively. Predictably, demand persistently exceeds supply in each of the above markets. There is no satisfactory explanation in microeconomic theory to account for this behaviour. It is this apparent economic anomaly which is of interest here. In a more specific example, much of the literature suggests (Jones, 1976, Noll, 1974b to name a few) that National Hockey League (NHL) teams set ticket prices to maximize profits. Some NHL teams like the Montreal Canadiens however, continually face excess demand at hockey games but do not raise the price. The hypothesis that these teams set prices at their profit maximizing levels is inconsistent with their market behaviour. Other authors (Thaler, 1985, Knetsch et al., 1986) have suggested that this microeconomic anomaly results from consumers having standards for fairness in pricing. For example, consumers have perceptions of what is a fair price for a Cabbage Patch Kid, a Final Four ticket, or a hockey game ticket. Teams or firms which price commodities unfairly might be punished by discontinued patronage. In response, if demand is sufficiently great, teams and firms in these markets set prices below the market clearing level. Hitherto, neither pricing hypothesis has been supported with substantial empirical evidence. The chief contribution of this study to the literature is the provision of a theoretical framework which allows for the direct statistical evaluation of each pricing hypothesis. Simple demand systems encompassing an attendance and a price equation form the basis of the analytical framework. Restrictions within and between the price and attendance equations are created by the imposition of a particular pricing hypothesis. The form of these restrictions is often non-linear in nature and necessitates the use of non-linear estimation techniques. Testing whether these restrictions do or do not bind denotes a test of the particular pricing hypothesis. The likelihood ratio test statistic is the specific criterion for evaluation used in this study. Suitable models of the two pricing hypotheses are developed using this framework and empirically evaluated using three seasons of game by game data from the NHL. The statistical results of this study suggest that perhaps revenue maximizing ticket prices are constrained by considerations of fairness. The scope of this study was primarily methodological and not empirical so these statistical results are somewhat qualified. The purpose of this study, however, was not necessarily to provide empirical support for a particular pricing hypothesis in the NHL. The intent of this study was to lay the theoretical groundwork so that the empirical analysis of pricing hypotheses might even occur in the future.
dc.format.extent88 pages
dc.identifier.urihttps://hdl.handle.net/1828/18560
dc.rightsAvailable to the World Wide Weben_US
dc.titleA tale of two pricing hypotheses in the NHLen_US
dc.typeThesisen_US

Files

Original bundle
Now showing 1 - 1 of 1
Thumbnail Image
Name:
LE_DRESSAY_Andre_MA_1989_505431.pdf
Size:
27.06 MB
Format:
Adobe Portable Document Format
Download

Collections

Electronic Theses and Dissertations (ETD)
 
University of Victoria Libraries

We acknowledge and respect the LəkĢ“Ź·É™Å‹É™n (Songhees and Esquimalt) Peoples on whose territory the university stands, and the LəkĢ“Ź·É™Å‹É™n and WĢ±SƁNEĆ Peoples whose historical relationships with the land continue to this day.