Why are Concessions so Cheap at the Masters?
Why are concessions so expensive at the ballpark? Some of the explanations include:
- The captured consumer theory. Once in the ballpark, if someone wants to buy, say, a beer, he has little recourse than to buy from inside the stadium. So according to this theory, the concession booths have market power over their consumers and charge a price way above marginal cost. This theory is hard to take seriously for two reasons. First, people who buy tickets to games know full well that once there, they will be paying very high prices for their concessions. So in this sense, these consumers are not captured. They are there voluntarily. Second, there are other goods – bathroom stalls, for instance – that people don’t have to pay to use. The people at the stadium are captured. Why not charge even a nickel to use a toilet?
- The two-part tariff theory. This theory suggests that the price of admission and the price of concessions are a type of two-part price discrimination scheme. Different fans have different demands for a given game, and the team would have an incentive to charge different prices to different fans. However, it’s hard to identify if a fan is high or low demand just by looking at him, so the team is essentially forced to charge a single (low) ticket price to each fan that sits in any particular section. However, if high demand fans are also willing to pay a high price for concessions, then the team can charge a high price for concessions and a low price for tickets. Both types of fans come to the games, only high demand fans buy concessions, and the team makes more money.
- What I’ll call the “competitive theory. This theory is described in a paper by John Lott and Cafe Hayek’s Russell Roberts. They write about the price of popcorn at the movie theater (page 19):
“If all movie viewers ate popcorn at the movies and ate the same amount, the question of pricing at the concession stand would be of little interest. The only thing that would matter would be the combined price of the ticket and the popcorn. We have one estimate that the average patron spends about 40 (cents) on popcorn, so only a relatively small fraction of customers purchase popcorn. The sophisticated version of the monopoly power explanation adds that there is a positive relationship between willingness to pay for the movie and willingness to pay for refreshments. By charging a high price for popcorn, the theater is able to extract consumer surplus.
“Friedman  suggests a competitive explanation. There are high costs of providing refreshments (the staffing and capital costs of the concession stand) over the short period of time demand exists. As a result, popcorn is expected to have a high price because its true cost is indeed high.”
What can be said about popcorn at the movies also can be said about concessions at the ballparks. The demand for concessions only exists during games, so there is a high opportunity cost of the concession space and a high price for concessions helps cover this high cost.
So those are three theories used to explain why concessions are so expensive at the ballpark.
Then there’s this about the Masters in Augusta:
But once you’re inside the grounds, Augusta is weirdly inexpensive. The general rule of the modern sporting event is the “quintuple gouge” – gouge you for a seat, gouge you to park, gouge you to eat, gouge you to drink, and gouge you once more if you’re daffy and flush enough to want a souvenir. But the Masters is charmingly anti-gouge. Official parking is free, though if you want to be a cowboy and park at a private lot, there are plenty for $10. Food is astonishingly cheap – not just cheap in the sporting event context, but just cheap, cheap. The famous Pimento cheese sandwich is a buck and a half; two of them will have you napping under a shade tree. An egg salad sandwich is also $1.50. The Masters club sandwich is $2.50. For big spenders, you can go wild with a grilled chicken wrap at $3.00.
And beer? This will make you cry: $3 for domestic, $3.75 for imports.
Why would the Masters choose such low concession prices when other sporting events have much higher concession prices? If you are partial to the two-part tariff story, then it’s tempting to explain the low prices by saying that those who come to see the Masters have a low willingness to pay for concessions. If you are partial to the competitive theory, then it may be that there is a lower cost of providing concessions at the Augusta National Golf Club.
Why do you think the Masters charges such low concession prices?