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 a beer, he has little recourse but 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 they will be paying very high prices for their concessions once there. 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 cost 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 other fans. However, it’s hard to identify if a fan is in 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, 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 John Lott and Cafe Hayek’s Russell Roberts paper. 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 [1986] 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 increased 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.
Also, see this picture posted by Darren Rovell on Twitter.
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, there may be a lower cost of providing concessions at the Augusta National Golf Club.
I’d bet on two possibilities, with an initial caveat: unlike arenas and theaters, the concessions at Augusta National Golf Club are in no way reliant on making a profit.
So the first theory is simply conspicuous consumption. It makes Augusta look well-off if they signal that they don’t need to max out concession prices. It’s like people giving out fancy gift-bags.
The second is a bit more of a stretch. A lot of the appeal of the Masters, and golf in general, is the pleasant, relaxed beauty of it all. It’s arguable that it’s good for Augusta to keep their branding paradisal, and hawking $9 beers hurts that image.
Not saying I fully endorse either of these — I’d personally bet a mix of the two along w/a bit of the competitive theory — I just like justifying things.
Augusta’s pricing is anomalous, no doubt. But the same question applies to the price of admission. The Masters is the most underpriced sporting event on the planet. They are leaving tens of milions of dollars on the table each and every year. And the press still hates them, and they don’t care! Anomalous, but wonderful.
I think the people running The Masters are still operating under the assumption it is 1958 and they are doing just fine charging what they do. They leave money on the table because they can and they figure it’s not their money, it’s the patrons. It’s not like the club was purchased in a LBO and has to squeeze every penny to meet debt obligations.
Sort of like The Grateful Dead always figured that once the notes were played at their concerts the music didn’t belong to the band anymore and people were free to tape the shows.
From what I can see online, the Masters/Augusta National isn’t hurting financially by any means (television contracts, membership, etc) so I can see it, along with the free parking and other lower-than-normal costs as public relations.
I guess at some point of financial security, one no longer sacrifices image for greed.
Same reason they limit the number of sponsors to 3 and accept a much smaller tv payment in exchange for significant limits on the number of commercials. They ain’t in it for the money. They’re maximzing something else.