Real Options Applied to Consumer Goods: Maximizing Profits and Fan Welfare

18 Pages Posted: 2 Oct 2012 Last revised: 17 Jul 2015

See all articles by Jason P. Berkowitz

Jason P. Berkowitz

St. John's University - Department of Economics and Finance

Kurt W. Rotthoff

Seton Hall University - W. Paul Stillman School of Business

Date Written: July 7, 2015

Abstract

This paper demonstrates that both consumer utility and event organizer profits increase when tournaments played at neutral sites sell tickets via options, which are exercisable only if the desired team reaches a given round of the tournament, and advanced selling; rather than just utilizing an advance selling strategy. This approach yields a separating equilibrium pricing strategy. Through this ticket pricing strategy, the organizer can realize a significant increase in profits as a result of a separating equilibrium. Simultaneously consumer welfare increases as fans know, with certainty, they have tickets to the game if their team makes it. If these options were offered by participants instead of organizer it allows them to smooth their revenues over time.

Keywords: Real Options, Sports, Ticket Pricing

JEL Classification: G1, L83

Suggested Citation

Berkowitz, Jason P. and Rotthoff, Kurt W., Real Options Applied to Consumer Goods: Maximizing Profits and Fan Welfare (July 7, 2015). Available at SSRN: https://ssrn.com/abstract=2154929 or http://dx.doi.org/10.2139/ssrn.2154929

Jason P. Berkowitz

St. John's University - Department of Economics and Finance ( email )

Jamaica, NY 11439
United States

Kurt W. Rotthoff (Contact Author)

Seton Hall University - W. Paul Stillman School of Business ( email )

400 S Orange Avenue
JH 674
South Orange, NJ 07079
United States
973-761-9102 (Phone)

HOME PAGE: http://pirate.shu.edu/~rotthoku/

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
85
Abstract Views
787
rank
396,951
PlumX Metrics