Dynamic Pricing to Extract Revenue from Visiting Fans?

The shift towards dynamic pricing continues.  This article describes Northwestern University’s approach to dynamic pricing.  The big idea in NU’s system is that prices will start high and then be decreased until the season ticket price is hit or until tickets are sold.  Winning buyers will then pay the lowest prices (i.e. if I buy at $300 per ticket and the section sells out at $150, then I pay $150).

Northwestern’s approach is interesting as prices drop over time and because the high price buyer has a bit of protection against over paying.  We do have a couple of observations.  First, these two consumer friendly features limit the value that NU can extract for the dynamic pricing.  From a firm’s point of view, the most efficient form of price discrimination is where consumers all pay their reservation (maximum) prices.  The NU system does provide a push to get consumers to buy quickly since the supply of tickets is limited.  This is, of course, an important part of any dynamic pricing scheme in that it always helps if supply is limited.

We do, however, believe that something else is really driving this foray into dynamic pricing.  The two games in the Purple Pricing plan are Ohio State and Michigan.  Our guess is that this program is mainly designed to extract maximum revenue from these visiting fans rather than from the Wildcat faithful.

Mike Lewis & Manish Tripathi, Emory University, 2013.