In a recent academic study of pricing techniques for Major League Baseball (MLB) games, researchers suggest that rather than creating customer backlash, dynamic pricing for products such as game tickets can lead to customers who are more satisfied, willing to spend more, and more pleased with their purchases. These results thus align with the spreading emergence of dynamic pricing in more and more industries, from ride-sharing services to restaurant reservations.

In the market for sporting events, when services such as StubHub arose to help customers buy and sell unused tickets, MLB and other leagues faced a clear challenge. But shutting down the alternative sales channels quickly proved impossible, so most of them have entered into collaborative agreements with the resale site, to create an official market that offers at least some control for the teams and some protection for customers. On these sites, the individual ticket sellers set the prices, such that someone anxious to get rid of a pair of seats to this Friday’s game likely charges less than another fan who can’t decide whether to go or not and thus will only sell them if he or she can get more than face value for the tickets.

Such pricing shifts have long been the practice adopted by scalpers and other grey market providers. By legitimizing the sliding price scale through StubHub sales, teams and their owners started to realize that they needed to rethink some other pricing norms that had long been in place but that perhaps were no longer appropriate.

By charging different prices to customers who buy tickets for specific games at different times, teams can rationalize and increase their revenues. According to the research study, a static price that is carefully chosen actually can be preferable to dynamic pricing, though identifying that optimal static price remains incredibly challenging.

Furthermore, the dynamic pricing model offers various benefits for both sellers and buyers. The MLB clubs that have used it have increased their revenues, as well as gathered extensive data about the prices people are willing to pay. The fans have gained greater familiarity with the concept of shifting prices, recognizing that “whether it’s with airplanes, professional sports, ride-sharing services, dynamic pricing is here to stay.”

 Discussion Question:

1. What is dynamic pricing?
2. What are the advantages and disadvantages of dynamic pricing from the retailer’s perspective?
3. How do you, as a consumer, feel about dynamic pricing?

Source: Knowledge@Wharton, Retail Wire, August 18, 2016