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

Production and Operations Management, dx.doi.org/10.1111/poms.12611

Posted: 27 Apr 2015 Last revised: 18 Feb 2017

Necati Tereyagoglu

Georgia Institute of Technology - Scheller College of Business

Peter Fader

University of Pennsylvania - Marketing Department

Senthil K. Veeraraghavan

University of Pennsylvania - The Wharton School - Operations & Information Management Department

Date Written: 2015

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

Suggested Citation

Tereyagoglu, Necati and Fader, Peter and Veeraraghavan, Senthil K., Pricing Theater Seats: The Value of Price Commitment and Monotone Discounting (2015). Production and Operations Management, dx.doi.org/10.1111/poms.12611. Available at SSRN: https://ssrn.com/abstract=2599232 or http://dx.doi.org/10.2139/ssrn.2599232

Necati Tereyagoglu (Contact Author)

Georgia Institute of Technology - Scheller College of Business ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States

Peter Fader

University of Pennsylvania - Marketing Department ( email )

700 Jon M. Huntsman Hall
3730 Walnut Street
Philadelphia, PA 19104-6340
United States

Senthil K. Veeraraghavan

University of Pennsylvania - The Wharton School - Operations & Information Management Department ( email )

Philadelphia, PA 19104
United States

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