TLDR: A recent poll came out stating that Chicago White Sox fans drink the most beer during baseball games. While also showing the number of drinks per attendee for each MLB team, this poll helps reveal something about the demand for beer and the relationship between fans and teams.
I find the price elasticity of beer, or the ‘ale-lasticity,’ is -0.1. This means that a 10% increase in the price of a beer at the ballpark would result in a 1% decline in beers sold, making the demand for in-stadium beer relatively inelastic.
This inelasticity also means teams are not pricing beer at profit-maximizing levels: read on to find out why.
As Major League Baseball ramps up its Spring Training, we head towards a fresh start for the 2021 regular season. It now appears, unlike last year, most teams will be allowed to host reduced numbers of fans in their respective stadia.*
After a financially rough 2020, it has been reported the 30 teams of MLB lost a collective $3.1 billion. Looking to recoup these losses, teams may now be faced with decision to alter prices on tickets or concessions even with fewer fans.
* As an aside, the last time the Chicago White Sox played a game in front of fans at Guaranteed Rate Stadium was back on 29 September 2019. That same day, while sitting in the stands, I received an email from my boss with a clip of Jason Benetti calling me out for 'man-splaining' to my then-girlfriend/now-fiancée (I guess she didn't mind hearing about the finer points of baseball, Jason).
Back to economics: one way to sell larger quantities of an item is to lower its price - this isn't too difficult of a concept to understand. However, if I were to say that I lowered the price of an item by one dollar and sold three more units, you may or may not say, 'so what?' This would be an impressive feat if the items in question were, say, cars, but not if they were cans of corn.
Instead, a better measure would be to see the percent change in sales resulting from a percent change in price. This is known as the elasticity of demand (it applies to price increases just as it does with price decreases).
For example, if the price of an item increases by 10% and its sales decrease by more than 10%, the demand is considered to be elastic. There is a disproportionate reaction by consumers to the change in the price of a good causing some to stop buying and substitute to another good or wait until the price declines to something more reasonable.
Conversely, if the price of an item increases by 10% and its sales decrease by less than 10%, the demand is considered to be inelastic. When the percentage price increase has the exact opposite percentage decline in quantity sold, the demand is considered unit elastic. This is the point at which a seller cannot raise the price any higher without sacrificing profits through lower sales. It also cannot lower its price without leaving money on the table. Costs aside, pricing at the unit elastic point of the demand curve achieves profit maximization.
So, with all this in mind, we can calculate the change in the quantity of ballpark brews in response to a change in price and answer the question of are teams profit maximizing?
I take the price of beer per ounce for each MLB team from Team Marketing Report's Fan Cost Index and the average number of beers per fan from the survey published by NJ Online Gambling and calculate the elasticity of demand using a log-log OLS regression. I find the price elasticity of beer, or the ‘ale-lasticity,’ is -0.1. This means that a 10% increase in the price of a beer at the ballpark would result in only a 1% decline in beers sold, making the demand for in-stadium beer relatively inelastic.
So, if teams could raise beer prices and still not lose too many sales, why don't they?
Well, research has shown time and time again that teams intentionally don't profit maximizing on every sale at a ballpark. Whether to avoid the consumer backlash from perceived price-gouging or to leave money on the table (also known as consumer surplus) for fans, teams often choose to invest in fan goodwill. In fact, a forthcoming co-authored paper of mine called "Stadium Giveaway Promotions: How Many Items to Give and the Impact on Ticket Sales in Live Sports" discusses how some teams give away promotions, like bobbleheads, to everyone just to avoid not giving a bobblehead to anyone. The teams that are most generous with their bobbleheads also have the most devote fans (e.g., Philadelphia Phillies, St. Louis Cardinals, San Francisco Giants, etc.).
And fans are certainly aware of the full cost of attending a live sports event. For example, an owner of a now-defunct soccer team, San Francisco Deltas, from a now-defunct league, North American Soccer League, issued a plea to his fans to continue coming to games and supporting the team. A survey revealed that 10% of Deltas fans did not return to the soccer matches due to the price of tickets and concessions. However, the comment section of the linked article above would suggest that 10% likely understates the actual size of the group feeling priced-out of the market (or maybe that its just a very vocal minority).
So, there you have it. MLB teams are doing you a favour by keeping beer prices lower than profit-maximizing levels. Therefore, if you are fortunate enough to attend a live baseball game this upcoming season and can do so safely, make sure you thank your team by purchasing a drink or two or three.
After all, beer doesn’t have much vitamins, that’s why you need to drink lots of it.
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