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Why Are Inferior Seats “Underpriced”? Evidence from the English Premier League

Leung Tin Cheuk (), Kwok Ping Tsang () and Tsui Kevin K. ()
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Leung Tin Cheuk: Wake Forest University, Winston-Salem, NC, USA
Tsui Kevin K.: Clemson University, Clemson, SC, USA

Man and the Economy, 2020, vol. 7, issue 1, 26

Abstract: This paper studies the practice of loss-leader pricing strategy in the English Premier League (EPL). While the TV broadcasting revenue for EPL clubs has increased over the past 20 years, the importance of revenue from ticket sales has declined. The theory of multi-product pricing suggests that a change in the relative importance of revenue sources can induce profit-maximizing firms to underprice one product in order to raise the demand for a complementary one. Using other leagues in England and Scotland that do not have as much TV broadcasting revenue as a control group, we find that inferior seats are underpriced among the EPL clubs. Consistent with the growing importance of TV broadcast revenue, we also find that such “loss-leader pricing” is stronger in later years of the sample. Furthermore, we provide evidence that the underpricing of inferior seats is more pronounced in (i) EPL clubs compared to clubs in other European leagues; (ii) elite clubs in EPL compared to non-elite clubs in EPL that have less TV broadcasting revenue; and (iii) clubs promoted to EPL as compared to clubs that are either promoted or relegated to different leagues in England and Scotland. These findings corroborate with the hypothesis that clubs that rely more on TV broadcasting underprice their inferior seats as loss leader to attract more passionate fans.

Keywords: loss-leader pricing; English Premier League; cross-subsidization; D22; L11; L83 (search for similar items in EconPapers)
Date: 2020
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