Question

The Tampa Bay Lightning announced they would be lowering prices on food and drink options in Amelie Arena for the 2020 season. Prices would be reduced by an average of 15 percent on 300 items, including alcohol. Some items (popcorn, bottled water, and soda) would be reduced in price by as much as 25 percent. Season-ticket holders would retain their additional 25 percent discount on top of those reductions.

Although event venues are well-known for high priced food and drinks, the Tampa Bay Lightning are not unique in this change to low-priced concessions. The Atlanta Falcons lowered their concession prices by 50 percent, and improved food quality, in 2016. Following this move, the owners reported a 16 percent increase in concession sales revenue and an 88 percent increase in merchandise sales. The move was so successful they reduced prices again in 2019. While other franchises are slow to follow suit, if the success of these moves is sustained, it may not be long until there is a new paradigm in stadium pricing.

1. Given that revenues increased when concession prices fell, what can you say about the price elasticity of demand for stadium food?
2. Merchandise sales also increased after food prices fell. Is the cross-price elasticity of demand between food and merchandise positive or negative?
3. What impact do you expect this to have on ticket sales? Use supply and demand analysis to predict how ticket prices might be affected. (Assume supply is perfectly inelastic.)

Answer 1

An increase in the revenues due to a decline in the consession prices indicates negative price elasticity of demand for stadium food. With a fall in the prices, more and more people began consuming the stadium food, thereby leading to higher revenue generation.

Merchandise sales also rose following the reduction in the food prices at consession stands. This implies a negative cross price elasticity between the price of stadium food and demand for merchandise. As the price of food falls, the demand for food increases, along with an increase in the demand for merchandise. This implies that food and merchandise are complementary goods in this regard.

The demand for tickets is expected to rise in this scenario. Assuming supply is perfectly inelastic, lower food costs raises the demand for food, consequently increasing the demand for stadium tickets as well. Thus, the price of tickets rises unanimously, while the supply remains constant.