Ticket prices, fairness and behavioural economics
Who wants to watch the Scousers play football? Certainly no Mancunian, and probably no self-respecting Londoner either. Yet demand for tickets at Anfield, the home of Liverpool FC, is high. Indeed, there is excess demand: more people want to watch the games than there is room for in the stadium.
In keeping with the precepts of market economics, the owners of the club proposed to increase the price of entry to the ground. From next season, the plan was that this would rise to £77 a game for the Main Stand, up from £59. But the proposal provoked a massive walk-out of some 10,000 fans from a Liverpool home game, nicely timed to coincide with the game’s seventy-seventh minute. In response, club owner Fenway Sports Group announced last week that it was not only withdrawing the proposed increase, but that there will now be a two-year price freeze on tickets.
The Liverpool Echo, the paper responsible for the memorable 1950s headline about the renowned polar explorer “Sir Vivian Fuchs Off to the Antarctic”, was ecstatic, reflecting the mood of the fans. The manager, Jurgen Klopp, was quoted as saying that the price freeze showed that the owners “really care about the club and the interests of supporters”.
Earlier this month, the Super Bowl between the Carolina Panthers and the Denver Broncos took place in Santa Clara, California. Yet wherever it is played, between whatever teams, this is the major event in the American sporting calendar. The price of TV advertising slots reflects the huge interest – it is sky high, and nobody objects to this particular application of basic market principles.
But the top behavioural economist Richard Thaler, in his recent book Misbehaving, argues that the NFL, the sporting body which runs the Super Bowl, takes a different, long-term strategic view towards ticket prices, keeping them reasonable despite huge demand. He quotes an NFL representative saying that this strategy fosters its “ongoing relationship with fans and business associates”.
Thaler gives a number of examples, in a wide range of non-sporting contexts, in which “gouging” the customer by reflecting any increase in demand through a price rise, is not seen by the companies as being the best strategy. Being a behavioural economist, he ascribes this to consumers having an inherent sense of “fairness”. He writes: “The value of seeming fair should be especially high for firms that plan to be in business selling to the same customers for a long time, since those firms have more to lose from seeming to act unfairly.”
Thaler has worked for over 30 years with the original member of what we might think of as the behavioural economics Hall of Fame – Daniel Kahneman. Misbehaving is an important book. But is much of behavioural economics just mutton dressed as lamb? It is not necessary to invoke the behavioural concept of “fairness” to explain company behaviour in these examples, as mainstream economics has a long tradition of distinguishing between short and long-run profit maximising behaviour. That is all we need to understand pricing at both Anfield and the Super Bowl.
As published in City AM on Wednesday 17th February