Liverpool v Man City and variable ticket pricing

I blogged on this before but thought it would appropriate to mention it again on the eve of the big game in Premier League today. When Liverpool play Manchester City at Anfield in the English Premier League on 10th March tickets will be very sought after (increase in demand) with both teams in the running for the EPL title. Because of the importance of such a game Liverpool FC can charge a higher price for tickets in order to maximise profits. This is referred to as variable ticket pricing (VTP) as ticket prices are set according to expected demand for a future game. This is widely used in the EPL and this year ticket prices at Anfield vary considerably for newly promoted Burnley and title holder Manchester City – see below. Prices from Live Football Tickets

From Liverpool’s perspective differences in demand create an opportunity for the club to maximise profits. The assumption is that attendances at Anfield will be similar for earlier games against clubs in the EPL – Nottingham Forest – 50,000 and Arsenal 58,000 (capacity). With the soon to be completed Anfield Road Stand the capacity is set to be 61,000.

For the firm profit is maximised at the rate of output where the positive difference between total revenues and total costs is the greatest. Using marginal analysis, the firm will produce at a rate of output where marginal revenue equals marginal cost. Remember that the firm will make profits as long as the extra revenue brought in from selling the last unit of output(MR) is greater than the extra cost which is incurred in producing it(MC).

In the graph it can be assumed that the marginal cost of hosting a game is essentially zero up to the point of the stadium’s capacity (58,000) as costs are about the same no matter how many fans attend. The demand curve for the Burnley game is AR2 and demand for the Manchester City game is AR1. A team using variable ticket pricing sets marginal revenue equal to marginal cost for each game – MC=MR1 and MC=MR2 resulting in prices of £399 and £189 respectively. Marginal analysis is in the syllabus of most introductory economics courses, in particular Cambridge A2 level, IB and NCEA Level 3.

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