Pricing Theater Seats: The Value of Price Commitment and Monotone Discounting

Abstract

We examine the value of price commitment in a nonprofit organization using individual level purchases over a series of concert performances. To decide on a pricing policy, the performing arts organization must be able to accurately measure when each ticket will be sold and what type of audience will purchase the tickets for each performance. We use a competing hazards framework to model the timing of ticket purchases when customer segments differ in their valuations and arrival times. We show that the customer purchase likelihoods change based on the prices observed earlier in the season. Hence, price commitment can aid in improving sales, revenues, and customer visits. In particular, we show that price commitment to a decreasing monotone discount policy can improve the revenues in the range of 2.1%-6.7% per concert.

Keywords: Non-profit, Performing Arts Industry, Price Commitment, Survival Analysis, Competing Risks

JEL Classification: C41, C44, C51, D4, L3, L82, M3