Business Week has an interesting article this week about a young economics PhD, Barry Kahn, from the University of Texas. Kahn has devised software that enables baseball teams to dynamically price their tickets, much like the airlines price seats. According to the article, "The software helps the Giants set prices based on past ticket sales, the day and time of the game, the teams' records, the pitching match-up, the weather, the going rate on resale Web sites like StubHub, and other data." The software holds the promise that teams can not only fill more seats, but generate more revenue overall.
Why does this type of dynamic pricing, used by airlines for years, fit the baseball market. Consider, for a moment, the key features of both markets. In each case, the costs are almost entirely fixed. The marginal cost of one additional person flying on a plane or attending a baseball game is almost zero. Moreover, the organizations sell seats which are "perishable" - i.e. once the plane takes off, or the baseball game begins, the seat can no longer be sold. This is not a good that can be held in inventory. Finally, there are a number of indicators that can help the organizations identify precisely those occasions and customers for which willingness to pay is quite high, and other situations in which it is much lower. One could see a number of other markets in which such dynamic pricing might apply, particularly in sports and entertainment.