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The promoter's role in ticket pricing: Implications of real options for optimal posted prices and rationing

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  • Jones, Steven L.
  • Yeoman, John C.

Abstract

We consider the problem of pricing event tickets for initial sale when demand is uncertain. It is a standard industry practice for a performer to contract with a promoter who underwrites the event and offers the tickets for sale at a posted price that is sticky in that it is either fixed or costly to adjust once sales begin. Promoters, therefore, bear price risk, and we show that bearing the risk associated with posting a sticky offer price amounts to writing a put option on the ticket revenue. Further, we show that optimal posted-offer prices can be expected to result in rationing (surpluses) if price uncertainty and price elasticity of demand are material (immaterial), even when the demand forecast is accurate. Our results have implications for a more general set of pricing problems in which items are offered for sale at sticky posted prices.

Suggested Citation

  • Jones, Steven L. & Yeoman, John C., 2009. "The promoter's role in ticket pricing: Implications of real options for optimal posted prices and rationing," Journal of Business Research, Elsevier, vol. 62(11), pages 1187-1192, November.
    • Handle: RePEc:eee:jbrese:v:62:y:2009:i:11:p:1187-1192
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    References listed on IDEAS

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    Cited by:

    1. Jones, Steven L. & Yeoman, John C., 2014. "Initial uncertainty and the risk of setting a fixed-offer price: Implications for the pricing of bookbuilt and best-efforts IPOs," Journal of Corporate Finance, Elsevier, vol. 27(C), pages 194-215.
    2. Méndez-Suárez, Mariano & Crespo-Tejero, Natividad, 2021. "Why do banks retain unprofitable customers? A customer lifetime value real options approach," Journal of Business Research, Elsevier, vol. 122(C), pages 621-626.

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