The University of Oregon employs a tiered-pricing system when choosing the face

Question

The University of Oregon employs a tiered-pricing system when choosing the face value of a ticket to a Ducks football game. That is, the price for the same seat in the stadium varies based on when the game is played and who the opponent is. For example, according to Ticketmaster, in 2018 a row 20 ticket in Autzen Stadium costs: $10 for the Portland State game $83 for the Washington game $53 for the Standford game a) What type of price discrimination is this? Explain- I'm looking for more than just a vocabulary word here. b) Discuss how this tiered pricing system affects the profit received by the University of Oregon's athletic department compared to a uniform-pricing system. c) What are the welfare effects on consumers? Break it down into 2 categories: hardcore football fans and casual fans

Explanation / Answer

a) In Economics, we have three types of price discrimination: First degree, Second degree and the Third degree. This is an example of "Third Degree Price Discrimination." This type of price discrimination involves charging a different price to different groups of consumers for the same good. So, in this case, the University of Oregon is charging different prices for the same seat for different games.

b) The main concept involved here is how the University of Oregan tries to reduce the consumer surplus. If it had used a uniform-pricing system, then it would not have been able to minimize consumer surplus. In the uniform-pricing system, it would be selling the ticets at prices below the consumers' capability to pay and thus will miss out some profit. The key concept here is to know the consumers' capability to pay and then price accordingly.

Now, in the tiered pricing system, the University is trying to reduce the consumer surplus. It knows that the most famous game out of three is the Washington game.Thus, there will be huge demand of tickets for this game and therefore the University will increase the prices to earn more profit. Key concept here is that the Washington game is most price inelastic followed by Standford and then by Portland state game. If the University increases the price for Washington game, then since this game is price inelastic it won't have much effect on the no. of tickets sold. But the same is not true for the Portland state game, since, it is relatively price elastic, thus, if the University increases price for this game, then the no. of tickets sold may decrease sharply, therfore, it has set minimum price for Portland state game.

So, the University will earn more profit by employing tiered-pricing sytem instead of uniform-pricing system. Again, the key difference between the two startegies is that in the tiered system, the University is trying to reduce the consumer surplus and thereby increasing the profit. But, in the uniform pricing system, there is no effort to reduce the consumer surplus, therefore profit will be lesser in this case.

c) Hardcore football fanes: Most of the hardcore fans would be interested in watching only the Washington game and since the price of this game is highest, thus, they would have to shell good amount of their budget to watch this game.
Casual fans: Since these fans watch football ocassionally and they don't have any strong preference for any particular match, thus they would be watching the match having the lowest ticket price.
So, the tiered pricing is beneficial for the casual fans but not so for the hardcore fans.

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