Dynamic pricing OK, but not price-fixing

Sports teams can utilize dynamic pricing, but not price fixing conspiracies.

Dynamic pricing, long a staple in the marketing mix for airlines and hotels, is expanding to the marketing of sports events.

The concept is the same for all applications: an unfilled seat.  A departed flight with empty rows; last night's unsold hotel room; or, tickets remaining in the box office after the hockey game is over--all present the same problem/opportunity--how to convert future unsold inventory into revenue.

Mathematical models, based on historical data, can provide rate -of-sale projection, e. g. if 40% of inventory is sold out ____ days before the event, it can be estimated that actual sales will be ____ of inventory.

When projected actual sales are less than 100%, that is the time to lower prices under the economic theory that lower prices will increase demand.  Of course, if prices are lowered too much, demand will accelerate and the inventory will be "blown out" way before the event.  This is known as "leaving money on the table."

Airlines avoid this problem by re-pricing seat inventory at least once a day.  As demand accelerates as a result of lowered prices, rates are increased.  If demand then falls off, rates are lowered.  (Of course, airlines always keep a few seats for the "last minute business traveler" who will pay "any price" to be on the "last flight out" so he/she can close the million dollar deal in which the profits are so large that the ticket price becomes inconsequential).

There is the portent of a major problem with dynamic pricing.  It may be unlawful.  The Robinson-Patman Act forbids price discrimination.  To be invoked, there must be:

      1.  two or more consummated sales,
      2.   reasonably close in point of time,
      3.   of commodities,
      4.   of like grade and quality,
      5.   with a difference in price,
      6.   by the same seller,
      7.  to two or more different purchasers,
      8.  for use, consumption, or resale within the United States or any territory thereof,
      9.  which may result in competitive injury.
     10. the interstate  "commerce" requirement must be satisfied.

Can you spot the "out" for airlines, hotels and sports events?   They are not commodities; they are an intangible service.

There is, however, a twist.   If a sports team decides not  to engage in dynamic pricing itself, but instead contracts with third party ticket brokers to buy blocks of tickets at deep discounts, for the brokers to sell to consumers at minimum resale prices (so as not to infuriate season ticket buyers), this is price fixing. 

Ticket brokers are relied upon for 3 reasons:

1.  It would be unseemly for a team to be selling tickets at its box office for face value while at the same time selling the same tickets at a deep discount on a third party web site.

2.  The ticket brokers pay cash, up-front, thereby helping the team's sales executives to move themselves into bonus territory, in a hurry.

3.   In return for "favored broker status" they follow the team's orders and fix prices.

"The essential elements of that crime are (1) the existence of a price-fixing conspiracy at or about the time alleged in the accusatory instrument; (2) defendant knowingly became a member of that conspiracy; (3) defendant joined the conspiracy with the intent to unreasonably restrain trade; and (4) the conspiracy concerned goods or services in interstate or foreign commerce."  UCAR Intern., Inc. v. Union Carbide Corp. Not Reported in F.Supp.2d, 2004 WL 137073 (S.D.N.Y.) (2004) [P. 16]

There is now empirical evidence, which can be transmogrified into admissible evidence by a subpoena, to show that some sports teams are deeply discounting their projected unsold inventory to a cartel of ticket brokers who subscribe to unlawfully maintain minimum resale prices on secondary websites offering tickets to the public.

The teams know who they are and should WATCH OUT!