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

  • Tin Cheuk Leung EMAIL logo , Kwok Ping Tsang and Kevin K. Tsui
Published/Copyright: June 22, 2020
Man and the Economy
From the journal Man and the Economy Volume 7 Issue 1

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
JEL codes: D22; L11; L83
Corresponding author: Tin Cheuk Leung, Wake Forest University, Winston-Salem, NC, USA, E-mail:

We thank Cloud Yip for first introducing us to this topic. We also thank John T. Dalton and the seminar participants at Clemson, College of William and Mary, CMES, IIOC and Wake Forest for helpful comments. We also thank Tom Lam for providing attendance data of English league games. The usual disclaimer applies.

Appendix Home advantage and attendance rate

An implicit assumption in our analysis is that a higher attendance rate in a game implies stronger home advantage for the home team. Here we use the head-to-head results, attendance, and other information for all the league games in England and Scotland between 2012/13 and 2017/18 seasons to test the validity of the assumption. In particular, we run the following OLS regression:

HomeWinijt=α0+α1Attendance+α2Xijt+εijt,

where HomeWinijt equals to 3 when the home team, i, wins, 1 when it is a draw, 0 when the away team, j, wins. Attendance is the attendance ratio of the game, that is the ratio of the actual attendance and the stadium capacity. Xijt includes controls for the game such as popularity of the away team (measured by their average home attendance), league ranking of the away team, season fixed effects, league fixed effects, and home team fixed effects.

Table A1 below shows that, in all specifications, a higher attendance ratio is associated with higher probability of a home win, even after controlling for the strength of the home and away teams.

Table A1:

Is attendance related to win probability?

(1)(2)(3)(4)
Home game outcome (win = 3, draw = 1, loss = 0)
Attendance ratio0.585***0.355***0.359***0.155***
(14.49)(8.61)(7.99)(2.76)
Away team controlsYesYesYesYes
Season FENoYesYesYes
League FENoNoYesYes
Home Team FENoNoNoYes
Observations21,36121,36121,36121,361
R20.010.040.040.07

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Received: 2020-05-15
Accepted: 2020-05-15
Published Online: 2020-06-22

© 2020 Walter de Gruyter GmbH, Berlin/Boston

Articles in the same Issue

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  2. Four Patterns in the Evolution of Dismissal and Resignation: An Epitome of the Labor Law Regime during Forty Years of Reform and Opening Up
  3. Why Are Inferior Seats “Underpriced”? Evidence from the English Premier League
  4. Corporations as the Outgroup?
  5. Transaction Cost and the Theory of Games: The “Prisoners’ Dilemma” as an Example
  6. Does Foreign Direct Investment (FDI) Promote Socioeconomic Development? Evidence from Advanced, Emerging-market, Developing and Transition Economies
  7. Competition
  8. Wisdom of the Past
  9. Henry Martyn on East-India Trade
https://doi.org/10.1515/me-2020-0007
Keywords for this article
loss-leader pricing; English Premier League; cross-subsidization

Articles in the same Issue

  1. Original Articles
  2. Four Patterns in the Evolution of Dismissal and Resignation: An Epitome of the Labor Law Regime during Forty Years of Reform and Opening Up
  3. Why Are Inferior Seats “Underpriced”? Evidence from the English Premier League
  4. Corporations as the Outgroup?
  5. Transaction Cost and the Theory of Games: The “Prisoners’ Dilemma” as an Example
  6. Does Foreign Direct Investment (FDI) Promote Socioeconomic Development? Evidence from Advanced, Emerging-market, Developing and Transition Economies
  7. Competition
  8. Wisdom of the Past
  9. Henry Martyn on East-India Trade
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