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28 August 2008

Inelastic demand

In Part II of the AN/Wolff interview, out popped the most curious exchange (emphasis mine):

Blez: I’m going to get to the tarp and the Coliseum a little later, but how do you sell a team that is in rebuilding mode to a market that at times can be ambivalent? The Coliseum wasn’t even selling out when the A’s were the class of the AL a few seasons back. Does it take a World Series victory or even two to motivate these fans again? Or is this just a dead market?

Wolff: I do think that the proximity between us and the Giants hurts. They’ve actually moved closer to us. The six years prior to the year 2000, the Giants outdrew us by around a half a million on average per year. In 2000 they opened the new ballpark and the attendance has jumped and pretty much has stayed there. The difference is now about a million and a half although I haven’t checked it this year. That (the new venue) has something to do with it. Maybe not 100 percent. Secondly, Barry Bonds was a big attraction there and we didn’t have Barry Bonds. The other side of it is the demographic. Both the Giants and ourselves have a lot of water in front of us so there isn’t anyone else living there. A couple of other owners tease us that we may be the only inelastic demand team in baseball. That means that if you won the World Series, the next year would you have two and half or three million out there? In other words, our band of attendance has been approximately 1.7-2.1 million, win or lose that’s where we’ve been.
The comments thread had a nice exchange regarding inelastic demand. What does inelastic demand mean? Simply put, it's a lack of demand change for a product relative to price change. The formula for demand elasticity looks like this:

When the value (absolute value) of this coefficient is between 0 and 1, demand is considered inelastic. You're probably wondering what how the A's demand has looked recently. To that end I compiled a table showing the FCI average ticket price and annual attendance (2008 attendance projected):

You can see that from 2001 forward, the demand ratio (coefficient) has been less than 1 or less, hence inelastic. This is despite a 102% hike in ticket prices in that timeframe. The rich teams have unique market positions. The Yanks, Mets, Red Sox, and Cubs are effectively monopolies. That's how they can continuously raise ticket prices with zero effect on demand. They are the antithesis of the A's. As long as the A's are in the Bay Area, they will always be in a competitive position, not a monopoly position.

So why has this happened? We've gone over most of the reasons in great detail. The Coliseum is long-in-the-tooth, disaffection from long-time fans, the Giants moving closer and poaching casual fans, on-field performance, susbtitute entertainment options, etc. ad infinitum. Is it a reason to abandon the market? Of course not. This market is plenty big enough for six or seven major sports franchises as long as they have good venues and are located properly. In light of this, I don't expect the current business model at the Coliseum to change much in the remaining years of the lease - no untarping the third deck, no cheaper beer or concessions, no ticket price freezes. There's little impact to project from such moves, and thus little reason to make any moves.

11 comments:

wwvye said...

"Is it a reason to abandon the market? Of course not. This market is plenty big enough for six or seven major sports franchises as long as they have good venues and are located properly."

Is this opinion your premise - the foregone conclusion - of this blog?

If so, that explains much of the dialouge, since the "problems" and "solutions" which surround this sentence always seem somewhat interchangeable.

So what you are after is a "new A's ballpark in the Bay Area"? Why don't you title your blog such?

"A's ballpark" would also work, as this would incorporate the current venue, in this market, the storefront of an ongoing concern.

You can put the answers before the questions, if you wish, it's your blog, do what you want. Heck, your an architect, according to Lew, build your own windmill as you like. Don't mind me if I jump out of the way, with these building codes, stuff often comes crashing down.

Marine Layer said...

The title is a simple catchall that I never gave much consideration after I created my blogger account.

Regarding the quote, it took a lot of time and consideration to develop that view. I certainly didn't start writing the blog with that notion. Like many, I feared another city taking the A's away. Over time I found that fear was largely baseless. The Bay Area is dynamic, yet largely homogeneous. It's wealthy, albeit with a limited population. There is a constant competition here and that has to be addressed by those that want to be successful.

Unlike Wolff I don't knock the process. I think it's important and necessary. It's why we don't have waterfront high-rise hotels and hills covered in houses instead of trees.

Don't knock windmills. They are our future. You ever looked at the state's building code? It's exhausting in its detail.

Anonymous said...

Amazing that Wolff talks about the Giants moving closer as if this was a motive for picking their ballpark.

This type of inferiority complex is truly amazing to me.

Jeff A.

Anonymous said...

Now you're an economics professor ...

Anonymous said...

I do not think you get it. I think the economic term is being used to reflect not price but on-field performance....a bit tounge in cheek.

No matter how well the A's perform on the field, the range of attendance is narrow. This would reflect on the depth of the market...I think.

Marine Layer said...

Come on, I'm fully aware of the performance factor. I've been writing attendance pieces here since the beginning. I chose price because it's a major factor that has been severely under-reported the last few years.

bbison said...

wwvye said...

"" "Is it a reason to abandon the market? Of course not. This market is plenty big enough for six or seven major sports franchises as long as they have good venues and are located properly."

Is this opinion your premise - the foregone conclusion - of this blog?""

If you check the archives, ML had an extensive discussion and analysis of a study that tried to quantify just how many pro sports franchises a market could support.

IIRC, the study suggested the Bay Area had just about the right amount. (Though 2 NFL teams + 3 D-I football teams is probably too many--is any other market that football saturated?)

Anonymous said...

I live in Newark and believe the A's belong in Oakland. I'm hitting the Costco, where Cisco Field is supposed to go up. The only time where traffic is good, is 6:30AM in the morning....on the weekend. On a busy day, exiting Auto Mall from SB 880, you would be really lucky if you can make the right turn when the signal is green, the traffic is already packed now, imagine with the A's. This is where I believe Wolff, is just going through the motions "drawing" up plans, way too many holes in them. The biggest bone I'd toss at him was BART, there's a stop at the current Coliseum site, which is less than a half mile walk from his proposed site, yet he's proposing a BART stop leading directly to his village....on the flip side, his Fremont Village is what 4-5 miles from the Fremont BART stop and he said Cisco does not need a BART stop. And to add on to the Fremont, the traffic is much worst than the current Coliseum situation.....Wolff's a crook.

Anonymous said...

Wolff's a "crook"??? Really, I thought he bought the team.

Show me a place in Oakland, where a new stadium can be built AND (this is important)PRIVATELY FINANCED...

Oh...You cant.

Anonymous said...

What a bunch of utter crap. You are completely overstating the traffic situation in that area. The only time it's bad right now is rush hour. The rest of the time it's fine. And the Warm Springs station will be a mile and a half away. Basically everything you posted is false.

Anonymous said...

GOOD POST BUT WHY ARE YOU AFRAID TO COMPARE THE GIANTS TICKET PRICES TO THE A'S?