The NFL and Tie-in Sales

The NFL’s Washington Redskins now require their customers to pay by cash, by cheque, or with a Redskins Extra Points MasterCard (from the Washington Post, registration required). The credit card, known as an affinity card, gives users points toward Redskin merchandise for each dollar spent and yields some additional revenue for the team, especially if cardholders use the card for additional purchases beyond just buying tickets to Redskins games.

But why would a profit-maximizing team require customers to use an affinity credit card? The usual argument by non-economists is that tie-in sales are used to extend the firm’s monopoly in one product (the tying product, in this case tickets to Redskins games) to another that is sold in a competitive market (the tied good, in this case the credit card). Economists react to this argument by pointing out that usually a firm with monopoly power can best maximize its profits by raising its price rather than tying their good to the sale of some other product, especially if doing so increases transaction costs for their customers, making them unhappy.

Is that the case here? Not entirely. The team argues that it requires use the affinity card because,

“It helps process our tickets and get them out faster.”

Maybe. But if the team feels some pressure not to extract the full monopoly price from its customers (and Phil Miller thinks is a strong possibility in baseball), then it makes sense for them to tie ticket sales to their affinity credit card as an indirect way of extracting more consumer surplus from the ticket purchasers. The example could be analogous to the gas stations that required customers to purchase oil changes or lucky rabbit feet in order to buy gasoline back in the late 1970s when gas prices were fixed below the market clearing price.

I am not arguing that NFL ticket prices are fixed by some regulation below the monopoly price; but if there are P.R. reasons for not directly extracting the maximum price, using tie-in sales to capture more profits can make sense if the benefits outweight costs.

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Author: John Palmer

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