In professional sports, for example the NFL, NBA, and MLB, among others, researchers usually agree that franchise owners make decisions focused on maximizing profits. In addition, franchises in the four major sports are granted exclusive rights by their leagues, giving teams somewhat of a monopoly in their local markets. Based on economic theory, a single-product firm will generate maximum profits when it produces an amount where the added costs of production (the marginal costs) are just equal to the added revenue from selling the product (the marginal revenue). Economists have identified a relationship between the marginal revenue and the elasticity of demand. When a firm sells more of a product, its revenue increases, all else equal. However, if the increased sales result from lowering the product’s price, then the price change gives an offsetting effect on revenue. The question is, do revenues increase, decrease, or remain constant? The answer to this question is provided by having knowledge of the elasticity of demand. When the demand for a product is elastic, lowering a product’s price causes revenues to increase (marginal revenue is positive). When the demand is unit elastic, revenues neither increase nor decrease (marginal revenue is zero). When demand is inelastic, revenues fall (marginal revenue is negative). Because a firm generates maximum …show more content…
Although these articles certainly clear up some of the confusion surrounding inelastic ticket prices, they still do not explain `low` ticket pricing that creates persistent shortages: Raising price to eliminate a shortage in no way diminishes concession or parking