Multiproduct Pricing in Major League Baseball : A Principal Components Analysis

The theory of multiproduct pricing is well developed in stylized models, although a unified theory has yet to be developed. As such, empirical analyses are rarely guided by strong theoretical hypotheses and are therefore scarce. This paper analyzes the interactions of ticket, parking, and concession prices in Major League Baseball for the period 1991-2003 using a principal components methodology. The approach allows inferences to be formed about the factors underlying intertemporal price variation in the absence of information about costs and demand. The most important factor influencing prices in baseball is a general increase in the demand for baseball, but general demand shifts explain less than half of all price variation. The second most important factor is pricing interactions between tickets and concessions that are consistent with theories of nonlinear multiproduct pricing. Secondary empirical analysis confirms these economic interpretations. The results show that the principal components methodology is an effective way to draw inferences about the economic forces underpinning pricing in a multiproduct context using data on prices alone