Question

It is one of the indisputable axioms in pro sports: Teams that open new stadiums raise prices for tickets, parking and food.

Arthur M. Blank, the owner of the N.F.L.’s Atlanta Falcons, has tried to break the mold, at least for food and drinks. When he opened Mercedes-Benz Stadium last year, he included concession stands selling craft beer, designer sandwiches and high-end barbecue.

But he also included a value menu, with bottomless soft drinks, $2 hot dogs, $5 cheeseburgers and other affordable items.

The approach has paid dividends. Despite a 50 percent decrease in prices for food and nonalcoholic drinks compared to prices in the Georgia Dome, the amount spent per fan increased by 16 percent, Blank’s sports company said on Thursday.

The results suggest that fans will consume more if prices are kept at more reasonable levels, with potentially no effects on the team’s bottom line.

Fans in Atlanta appear to have embraced Blank’s strategy. According to surveys of fans by the N.F.L., Mercedes-Benz Stadium ranked No. 1 in terms of quality, value, speed of service and variety. The number of fans who arrived earlier before games increased by 10 percent as well, indicating that dining options inside the stadium were better than those in the surrounding area.

1. (8 pts) What does this article imply about elasticity of demand for concessions (food and drinks at the stadium)? What evidence in the article leads you to that conclusion?

Answer 1

In microeconomic analysis, total revenue from a product (P x Q) has a relationship with the price elasticity of demand for that product.

If the price elasticity of demand is low, a rise in prices will lead to a rise in revenue. This is because consumers will have no other choices. They may lower consumption, but not by much.

If the price elasticity of demand is high, a rise in prices will lead to a fall in revenue. This is because consumers have other choices, and they will shift their consumption.

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In this case, a decrease in prices has led to an increase in the revenue per consumer, and also the total number of fans arriving early for a meal.

If revenue rises with a fall in prices, it indicates high elasticity of demand.

Thus demand for food and drinks inside the stadium is elastic.

This implies that if prices are kept too high, the demand will fall drastically. If prices are kept low, demand will rise.

Though there are many options outside the stadium, fans would prefer to dine inside. However, it depends on the prices.