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We introduce the concept of consumer options and empirically validate it in the context of event ticket pricing. We demonstrate that consumer options can protect consumers from the downside related to uncertain outcomes, and enhance seller profits by enabling superior market segmentation and increasing consumer willingness to pay. We examine ticket...
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Citations
... While there is a long and storied literature on both forwards and options in the finance domain, we believe our paper is the first to model forward pricing in a marketing context. While Sainam et al. (2010) study an option ticket in the sports context, we go beyond and compare it to a forward contract (which has itself not been examined so far). We collect willingness-to-pay (WTP) information across different pricing mechanisms including forwards and options from a geographically representative sample of real fans. ...
... Electronic copy available at: https://ssrn.com/abstract=4063637 P r e p r i n t n o t p e e r r e v i e w e d from the options contract that has been studied before (Sainam et al. 2010, Jones et al. 2009). ...
... In contrast, the current paper offers the first formal theory of consumer forwards, comparing it with other pricing mechanisms, and examining the profitability of the mechanism under capacity constraints. Next, Sainam et al. (2010) explore the concept of consumer options in a sports context. In the ticket context, buying an option confers a fan the right but not the obligation to exercise it and purchase a final game ticket. ...
Tickets to the final game in popular elimination style tournaments (e.g., NFL Super Bowl) are expensive and scarce. Sports organizations typically sell these tickets well in advance of the final game. Fans hesitate to buy these tickets because they are unsure about whether their favorite team will play in it. We present two alternatives to the current practice: consumer forwards and options. A fan pays a reserve price to secure her team-specific forward ticket. If that team makes it to the final game, the fan must (in the option case, has the choice to) pay an exercise price to purchase the ticket. If the team does not make it, the forward expires (the option does not). We demonstrate how such alternatives buffer consumers from uncertainty and enhance profits under uncertainty. In a market with heterogeneous fan types, we demarcate conditions under which these alternative pricing mechanisms yield higher profits than advance pricing, including under capacity constraints.
... If the team does not advance, the option loses all value and can no longer be sold. Sainam et al. (2010) study this type of ticket option and show that the revenues may be at least as high as those from advanced selling and full information pricing. Using data from 2006 NCAA Men's Basketball Final-Four, Sainam et al. (2015) study fans' purchasing and reselling decisions in team-specific ticket option markets. ...
Though the sports markets have been growing rapidly, the growth rate of ticket revenues has trailed other revenue streams. With the push for use of analytics in recent years, sports organizations have opportunities to develop insights from data and improve overall revenues. In this paper, we illustrate sports ticket market dynamics, discuss the state-of-the-art technologies and data-related issues, present new pricing strategies, and suggest topics for future research.
... There have been several papers studying pricing for event sales for sports events (Barlow 2000, Sainam et al. 2010, Duran et al. 2012, Kemper and Breuer 2016, Bouchet et al. 2016, Jiaqi Xu et al. 2019). These papers focus on the problem faced by primary sellers rather than resellers. ...
Problem definition: We present a data-driven study of the secondary ticket market. In particular, we are primarily concerned with accurately estimating price sensitivity for listed tickets. In this setting, there are many issues including endogeneity, heterogeneity in price sensitivity for different tickets, binary outcomes, and nonlinear interactions between ticket features. Our secondary goal is to highlight how this estimation can be integrated into a prescriptive trading strategy for buying and selling tickets in an active marketplace. Academic/practical relevance: We present a novel method for demand estimation with heterogeneous treatment effect in the presence of confounding. In practice, we embed this method within an optimization framework for ticket reselling, providing the ticket reselling platform with a new framework for pricing tickets on its platform. Methodology: We introduce a general double/orthogonalized machine learning method for classification problems. This method allows us to isolate the causal effects of price on the outcome by removing the conditional effects of the ticket and market features. Furthermore, we introduce a novel loss function that can be easily incorporated into powerful, off-the-shelf machine learning algorithms, including gradient boosted trees. We show how, in the presence of hidden confounding variables, instrumental variables can be incorporated. Results: Using a wide range of synthetic data sets, we show this approach beats state-of-the-art machine learning and causal inference approaches for estimating treatment effects in the classification setting. Furthermore, using National Basketball Association ticket listings from the 2014–2015 season, we show that probit models with instrumental variables, previously used for price estimation of tickets in the resale market, are significantly less accurate and potentially misspecified relative to our proposed approach. Through pricing simulations, we show our proposed method can achieve an 11% return on investment by buying and selling tickets, whereas existing techniques are not profitable. Managerial implications: The knowledge of how to price tickets on its platform offers a range of potential opportunities for our collaborator, both in terms of understanding sellers on their platform and in developing new products to offer them.
History: This paper has been accepted as part of the 2019 Manufacturing & Service Operations Management Practice-Based Research Competition.
Funding: This work was supported by the National Science Foundation [Grant CMMI-1563343].
Supplemental Material: The online appendices are available at https://doi.org/10.1287/msom.2021.1065 .
... While our focus is on the NFL playoffs and the Super Bowl, our empirical approach and findings can be easily extended to other sporting mega-events. Some previous research has explored theoretical revenue management solutions to address uncertain demand, such as "Callable-capacity" (Gallego et al. 2008) and refund/ options (Sainam et al. 2010;Cachon and Feldman 2018). Our research builds a strong connection between airline revenue management practice and these theoretical strategies. ...
Using air travel ticketing data for the travel dates around the 2015 Super Bowl in Phoenix, AZ, we exploit the exogenous shock created by the National Football Leagure conference championship round results and design a quasi-natural experiment to identify market-specific airfare and booking patterns. Our findings help quantify the impact on the resolution in uncertainty by measuring the changes in airfare and bookings, before and after the conference championship games, in the airline markets of finalist teams and teams that lost in the conference championship round. This empirical evidence provides important insights to airlines.
... Their findings reveal the foundation of the problem wherein the buyers are almost always unsure of their future valuations for most services. In addition to these findings, Sainam, Balasubramanian, and Bayus (2010) found that profits from option pricing strategy outperform those from normal pricing strategy. They introduce the concept of consumer options and analytically prove that consumer options can lead to an increase in profits. ...
... Several studies have focused on the field of finance when discussing ways to resolve future uncertainty through options. However, attempts have also been made to apply this concept to other business areas (Liu et al., 2014;Sainam et al., 2010;Barnes-Schuster, Bassok, & Anupindi, 2002;Chen, Hao, & Li, 2014). Prior studies show that an option and other similar concepts, such as buy-back (Emmos & Gilbert, 1998;Wu, 2013), backup policy (Eppen & Iyer, 1997), or quantity flexibility policy (Tsay, 1999), enable amenable demand and supply chain control (Liu et al., 2014). ...
... Prior studies show that an option and other similar concepts, such as buy-back (Emmos & Gilbert, 1998;Wu, 2013), backup policy (Eppen & Iyer, 1997), or quantity flexibility policy (Tsay, 1999), enable amenable demand and supply chain control (Liu et al., 2014). Sainam et al. (2010) proposed an option pricing policy wherein the service provider can earn more profit than under the current advance selling practice. Similar to a real option or a financial option, a consumer option confers on the buyer the right, but not the obligation, to follow through on some future course of action (Amram & Kulatilaka, 1999). ...
In this study, we aim to determine the specific probability range, under which each price strategy outperforms others and expect how consumers react under the situation. In situations wherein consumer utility uncertainty is derived from the time gap between purchase and consumption, various pricing strategies, such as the early bird or option strategy, have been applied in order to resolve this uncertainty.
Under an unconstrained capacity, early-bird strategy is mostly superior. Conversely, under a constrained capacity, there exists the probability range, under which the option provides both service providers and consumers more benefits than early-bird pricing. Consequently, pricing strategy should be considered based on the characteristics of the industry and the probability of the occurrence of a favorable event. The major contribution of this paper is specifically generalizing the probability condition under each pricing policy to provide both consumers and service providers the maximum utilities.
... The Final Four is considered one of the best sporting experiences for college basketball fans (Tuchman, 2009). Yet, fans hesitate to buy tournament tickets upfront because their favored team may not make it to the final stages (Sainam et al., 2010). ...
... Pickens (2006) also advocates the use of a futures market and studies the legal ramifications for the governing body. Sainam et al. (2010) offer a formal model of options for sport event tickets and also experimentally validate the options concept. This paper departs from the others by empirically studying the concept of forward pricing using data from a firm that sells NCAA Final Four tournament forwards. ...
... Following Sainam et al. (2010), we demarcate the two types of fans: (1) 'team-based' fans who buy and possibly sell forwards on only one team and (2) 'game-based' fans who buy and possibly sell forwards on multiple teams-these fans want to attend the Final Four regardless of the playing teams. Arguably, forward pricing provides more value to a team-based fan than it does to a game-based fan in that it allows the teambased fan to reserve a seat to the final game in which his/her team is playing, for a nominal price. ...
Tickets to sports events like the NCAA basketball tournament are currently sold well in advance of the games. Fans who wait to purchase a ticket after knowing which teams will play are often disappointed because the tickets are sold out by then. Recently, some firms have offered fans the opportunity to purchase forwards on tick- ets before this uncertainty is resolved. Each purchased forward is linked to a team – if that team makes it, the fan must buy the ticket; otherwise, the forward expires. Such forwards protect fans from uncertainty and provide the firm with assured revenues. This paper presents an analysis of data from a company that offers forwards in a sports ticket market. Multiple models that account for fan heterogeneity are present- ed to capture forward purchase and resale behaviors. The analysis and findings shed light on how fans mitigate risk in this volatile setting and lay a foundation for future work on consumer forwards.
... In terms of the topics these articles analyse, nine articles are focussed on retail and consumption studies in retail environments, thus representing a major category (Bradlow and Rao, 2000;Chen et al., 2008;Kozinets et al., 2002;Lam et al., 2001;Moorthy and Zhang, 2006;Peñaloza, 2000;Sainam et al., 2010;Sherry et al., 2004;Yang et al., 2012). In addition to this category, four articles deal with sponsorship (Cornwell et al., 2005;Mazodier and Quester, 2014;Speed and Thompson, 2000;Yang and Goldfarb, 2015) and two articles concern adverting (Gijsenberg, 2014a, b;Joshi and Hanssens, 2010). ...
... With regards to methodologies, a majority of 18 out of the 25 articles reviewed in marketing apply quantitative methods such as experiments (e.g. Bradlow and Rao, 2000;Moore and Homer, 2000;Yang et al., 2012;Sainam et al., 2010) or modelling approaches (Gijsenberg, 2014a;Yang and Goldfarb, 2015;Yang et al., 2009). In parallel to quantitative approaches, one article applies a mixed-methods approach (Madrigal, 2008), three are qualitatively oriented ( Joshi and Hanssens, 2010;Sherry et al., 2004;Kozinets et al., 2002) and three articles are written in the form of comments (Gijsenberg, 2014b;Mazodier and Quester, 2014;Novemsky and Kahneman, 2005). ...
Purpose
The purpose of this paper is to provide a systematic review of articles on sport published in leading business studies journals within marketing, organisational studies and strategy.
Design/methodology/approach
Based on a review of 38 identified articles within the subfields of marketing, strategy and organisation studies published between 2000 and 2015, the articles’ topical, theoretical and methodological orientation within the studied subfields were analysed followed by a cross-subfield analysis.
Findings
The authors identify considerable differences in topical, theoretical and methodological orientation among the studied subfields’ associated articles. Overall, the authors also find that articles across all subfields tend to be focussed on contributing to mature theory, even though the subfield of marketing in particular exhibits contributions to nascent theory in contrast to organisation studies and strategy.
Originality/value
This paper contributes by illustrating the current state of research that is devoted or related to the phenomenon of sport within three subfields in business studies. Furthermore, the authors discuss the role played by leading business studies journals vis-à-vis sport sector-specific journals and offer avenues for future research.
... Their findings reveal the foundation of the problem wherein the buyers are almost always unsure of their future valuations for most services. In addition to these findings, Sainam, Balasubramanian, and Bayus (2010) found that profits from option pricing strategy outperform those from normal pricing strategy. They introduce the concept of consumer options and analytically prove that consumer options can lead to an increase in profits. ...
... Several studies have focused on the field of finance when discussing ways to resolve future uncertainty through options. However, attempts have also been made to apply this concept to other business areas (Liu et al., 2014;Sainam et al., 2010;Barnes-Schuster, Bassok, & Anupindi, 2002;Chen, Hao, & Li, 2014). Prior studies show that an option and other similar concepts, such as buy-back (Emmos & Gilbert, 1998;Wu, 2013), backup policy (Eppen & Iyer, 1997), or quantity flexibility policy (Tsay, 1999), enable amenable demand and supply chain control (Liu et al., 2014). ...
... Prior studies show that an option and other similar concepts, such as buy-back (Emmos & Gilbert, 1998;Wu, 2013), backup policy (Eppen & Iyer, 1997), or quantity flexibility policy (Tsay, 1999), enable amenable demand and supply chain control (Liu et al., 2014). Sainam et al. (2010) proposed an option pricing policy wherein the service provider can earn more profit than under the current advance selling practice. Similar to a real option or a financial option, a consumer option confers on the buyer the right, but not the obligation, to follow through on some future course of action (Amram & Kulatilaka, 1999). ...
... While there is a long and storied literature on both forwards and options in the finance domain, we believe our paper is the first to model forward pricing in a marketing context. While Sainam et al. (2010) study an option ticket in the sports context, we go beyond and compare it to a forward contract (which has itself not been examined so far). We collect willingness-to-pay (WTP) information across different pricing mechanisms including forwards and options from a geographically representative sample of real fans. ...
... Electronic copy available at: https://ssrn.com/abstract=4063637 P r e p r i n t n o t p e e r r e v i e w e d from the options contract that has been studied before (Sainam et al. 2010, Jones et al. 2009). ...
... In contrast, the current paper offers the first formal theory of consumer forwards, comparing it with other pricing mechanisms, and examining the profitability of the mechanism under capacity constraints. Next, Sainam et al. (2010) explore the concept of consumer options in a sports context. In the ticket context, buying an option confers a fan the right but not the obligation to exercise it and purchase a final game ticket. ...
... The Final Four is considered one of the best sporting experiences for college basketball fans (Tuchman, 2009). Yet, fans hesitate to buy tournament tickets upfront because their favored team may not make it to the final stages (Sainam et al., 2010). ...
... Pickens (2006) also advocates the use of a futures market and studies the legal ramifications for the governing body. Sainam et al. (2010) offer a formal model of options for sport event tickets and also experimentally validate the options concept. This paper departs from the others by empirically studying the concept of forward pricing using data from a firm that sells NCAA Final Four tournament forwards. ...
... Following Sainam et al. (2010), we demarcate the two types of fans: (1) 'team-based' fans who buy and possibly sell forwards on only one team and (2) 'game-based' fans who buy and possibly sell forwards on multiple teams-these fans want to attend the Final Four regardless of the playing teams. Arguably, forward pricing provides more value to a team-based fan than it does to a game-based fan in that it allows the teambased fan to reserve a seat to the final game in which his/her team is playing, for a nominal price. ...
Tickets to sports events like the NCAA basketball tournament are currently sold well in advance of the games. Fans who wait to purchase a ticket after knowing which teams will play are often disappointed because the tickets are sold out by then. Recently, some firms have offered fans the opportunity to purchase forwards on tickets before this uncertainty is resolved. Each purchased forward is linked to a team - if that team makes it, the fan must buy the ticket; otherwise, the forward expires. Such forwards protect fans from uncertainty and provide the firm with assured revenues. This paper presents an analysis of data from a company that offers forwards in a sports ticket market. Multiple models that account for fan heterogeneity are presented to capture forward purchase and resale behaviors. The analysis and findings shed light on how fans mitigate risk in this volatile setting and lay a foundation for future work on consumer forwards.
