Multiproduct Pricing in Major League Baseball: A Principal Components Analysis

The empirical analysis of multiproduct pricing suffers from a lack of clear theoretical guidance and appropriate data, limitations which often render traditional regression-based analyses impractical. This paper analyzes ticket, parking, and concession pricing in Major League Baseball for the period 1991-2003 using a new methodology based on principal components, which allows inferences to be formed about the factors underlying price variation without strong theoretical guidance or abundant information about costs and demand. While general demand shifts are the most important factor, they explain only half of overall price variation. Also important are price interactions that derive from demand interrelationships between goods and the desire to maximize the capture of consumer surplus in the presence of heterogeneous demand. SHSU ECONOMICS WORKING PAPER Multiproduct Pricing in Major League Baseball: A Principal Components Analysis 1 Craig A. Depken, II Department of Economics University of Texas at Arlington Arlington, TX 76013 Office: 817-272-3290 Fax: 817-272-3145 [email protected] Darren Grant Department of Economics University of Texas at Arlington Arlington, TX 76013 Office: 817-272-3286 Fax: 817-272-3145 [email protected] 1 The authors acknowledge the helpful comments of Bill Crowder, Brian Goff, Jahn Hakes, Courtney LaFountain, Steve Shmanske, Mike Ward, Ron Warren, and seminar participants at the 2004 Southern Economic Conference, the 2004 Western Economic Association Meetings, the 2005 Academy of Economics and Finance Meetings, Southern Methodist University, and the University of Texas at Arlington. This paper is complementary to a contemporaneous working paper by Stewart and Jones (2005), who investigate whether professional baseball teams are multiproduct firms in a much different way. Stewart and Jones test whether baseball teams can be treated as providing one product (an “event”), or two products (“entertainment” and “performance”), in a production framework, using a generalized cost function approach. They find that professional baseball teams are multiproduct firms, but that the products are weakly separable in production. They do not investigate price setting in their study. Multiproduct Pricing in Major League Baseball: A Principal Components Analysis