Pricing flight and cricket match tickets

There is an interesting contrast about the way cricket match tickets and plane tickets are priced. Plane tickets, especially of the low cost fliers, are priced very low if the booking is done well in advance. The ticket price keeps increasing as the date of journey approaches, and it is the highest on the day of travel. In contrast, the tickets of cricket matches (and also popular enetertainment shows) are priced very high initially. However, as the date approaches and if there is limited demand, the organisers generally lower ticket prices.

Now, both flight and cricket matches appear to have the same economic characteristics - fixed number of seats, and if seats are not filled there will be losses. Before we go any further, let us examine as to why there exists a differential pricing strategy, or price discrimination, for these two categories of tickets. We all know that consumers have varying utilities associated with the consumption or possession of the same good or service. This manifests in their exhibiting varying willingness to pay, in terms of demand prices, for the same service or good. The supplier or producer can maximize his revenues by capturing as many consumers as possible, and all at their respective maximum willingness to pay.

The cricket match or enetertainment show organisers have a problem in identifying the right ticket price. If they price it too low, all the tickets will be sold out quickly, and they would have lost out income from those who would have been willing to pay substantially higher prices for the ticket. On the other hand, if the tickets are priced too high, there is the possibility of inadequate demand at that price. The challenge for the organiser is to find the price or prices, at which he is able to capture the full willingness to pay of all the customers. Therefore, he deliberately keeps the price a little high so as to lure out all those with higher utility for viewing the match, and hence willing to pay the higher price. The organiser takes stock as the match date nears and if the tickets remain unsold in significant quantities, he lowers the price to attract more demand.

In contrast, the customer profile and demand motivations for flight tickets are different. Low cost carriers, in particular, price tickets very cheaply as the booking opens. This is to attract all those holiday and other fixed schedule travellers, who look for bargains and the cheapest options. Business and other official users who cannot fix their schedules in advance, would in any case be willing or indifferent to paying the actual or even higher prices to make the trip. By raising prices as the date of journey approaches, the plane operator is trying to capture this unique differential willingness to pay of his customer base. The operator has to make a judgement call on whether he will be able to make more money by the aforementioned differential pricing scheme or by filling more seats by keeping the prices uniformly low. In practice, it has been found that the former is a far more remunerative strategy.

The cases of cricket match (or entertainment shows) and flight seats are excellent examples of how price discrimination can minimize deadweight losses and help capture the full value for the organizers. The problem with price discrimination is the difficulty in identifying the right pricing strategy, whose failure can cause huge losses to the organizer.