Capacity Contstraints, Excess Demand, and Profit Maximization

We typically think about the seating capacity of a sports facility as a constraint faced by teams.  They can sell every seat in the facility, but once those seats are sold, they have a limited ability to generate additional ticket revenues through ticket sales.  Of course they can raise the price of the existing tickets, but that can only be done in the off-season, and teams also risk alienating fans who may object to “price gouging” practices by the team.

This puts the teams at somewhat of a disadvantage, given that demand clearly increases when the team plays better.  The Washington Capitals have been very successful in the past few seasons, and demand for both single-game and season tickets has increased significantly.

In response to this increase in demand, the Capitals have come up with a novel solution to the increased demand for tickets.  Washington Post reporter and blogger Dan Steinberg reports that the Capitals will offer standing-room-only season tickets beginning next season.   For the rock-bottom price of $60 per game, which adds up to $2,250 for the season, would-be Caps fans will be able to purchase a ticket for a standing-room-only (SRO) spot in the Loge section of the MCI Center (shown above).  According to Steinberg, Capitals ticket prices are in the bottom half of the NHL’s ticket price distribution.

Tickets holders cannot simply wander around the arena with these tickets.  The tickets come withe a designated standing area printed on them, and holders of the tickets are required to stay in their designated area (marked off with lines painted on the floor) while watching the game.  Owning these SRO tickets also entitles the owner to buy SRO tickets to playoff games for $107 per game.

Since the number of seats in the facility are limited, this strategy suggests that the resistance of fans owning season tickets to actual seats in the MCI Center must be significant, and that there must be quite a bit of excess demand for Capitals tickets.  It will be interesting to see how much demand there is for these SRO seats, and how long this lasts.

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