Thursday, 8 September 2011

Why the ticket prices for the Rugby World Cup should fall – some further thoughts

In the past couple of days, I've been asked for a fair bit of comment on the most recent press release from the University regarding Rugby World Cup tickets. I thought it might be useful to put a few points down here as not everything comes across as you intend in the media.
In my opinion, it would be in the best interests of RWC 2011 to lower ticket prices. As the tournament progresses, prices should fall for unsold tickets. Indeed, in a show of confidence, Martin Snedden has stated that there will not be any changes to ticket prices. Despite this, I believe lowering prices should be considered, as there are strong economic grounds for doing so, and it would be a profitable exercise.
Because RWC 2011 is the sole seller of the remaining tickets, and law prohibits ticket scalping, they are able to practice what economists know as price discrimination. Economic theory says that it makes sense for a single seller that can avoid arbitrage to set different prices for different customers so long as the price exceeds or at least equals marginal cost, and the result will be greater profit (assuming that lower prices will result in more of the good being purchased). It would be a fairly safe assumption that more tickets (for the same quality seats) would be sold at lower prices than at higher prices.
If there was no anti-scalping law, RWC 2011 would assume a lot of risk in that the profits would be creamed off by scalpers. As it is now, legislation reduces this risk substantially. So why not consider it?
Take, for example, the 6400 tickets already sold for the Romania vs Georgia match in Palmerston North. RWC 2011 could keep ticket prices as they are and may well find that the crowd at this match will not reach ground capacity of 14,000. These 6400 tickets have already been paid for, so no money will be lost if prices of the remaining tickets were lowered. Of course, with three weeks to go until this game, it is always possible that capacity could be reached at current ticket prices. There is, however, a distinct possibility that there will be tickets unsold if prices remain at their current levels. The crux of my argument is that as long as the price of tickets exceeds the marginal cost of an extra spectator, it makes sense to lower prices from their current levels. The marginal cost of an extra spectator isn't likely to be particularly great, given that many costs are fixed in nature and are thus already incurred regardless of whether 6400 or 12800 tickets are sold. 
This is all common sense - and so is my main point. A ticket sold at a lower price will add to tournament revenues, whereas that same ticket unsold adds nothing. Given that ticket revenues are all this country earns to cover the costs of the tournament, RWC 2011 should strongly consider lowering ticket prices for unsold tickets when the tournament begins. Given that they are so close to meeting target revenues of $268 million ($22 million is still needed as of September 7), thinking about cutting prices isn't completely stupid from a revenue maximising perspecting, and not to mention the possible flow-on effects. Lowering prices, I'd suggest, would result in greater attendances at games, quite possibly greater interest from locals, and a more positive local reaction to the tournament in general. The adidas All Blacks jersey fiasco showed that New Zealanders don’t appreciate what they perceive as unfair deals, and that the fallout can be damaging. I'm not suggesting that the RWC ticket prices are a bad deal - but at least consider what would happen if they were to fall. Lowering prices will generate goodwill that is priceless – and this country needs the intangible benefits to be substantial in nature to justify hosting the tournament. The best way to do this is to get more locals along to games.
Let's not forget the players and their visiting spectators. I'm sure they'd be impressed if New Zealand treated them to full stadia in the "Stadium of Four Million". These impressions count - now, and in the future.
Don’t get me wrong – I appreciate the need to reach the revenue target. I just think that lowering prices may well enable the target to be reached and even beyond! I find it hard to believe that RWC 2011 would not at least consider this in smaller centres, as we get closer to the games themselves. Let's see what happens.

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