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Sports economy, Porter and Thomas

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A. Read (and skim) the following portions of the Porter-Thomas paper, "PUBLIC SUBSIDIES AND THE LOCATION AND PRICING OF SPORTS," working paper, 2007.

READ: Abstract
READ: Introduction (pp. 1-2)
SKIM: Section II: Subsidy Bidding and the Invariance of Team Location (pp. 3-11)
READ: Section III: Team Owner Pricing Behavior with Public Subsidies (pp. 11- top 14)
SKIM: Section III.2 Team Owner Pricing Behavior with Public Subsidies (pp. 14-22).
READ: Concluding Remarks (pp. 23-25)

1. Explain, using managerial economics, why sports economists believe ticket prices are too LOW. No more than 75 words, please. You can do an excellent job with 40 - 50 words if you are concise.
2. For any general profit-maximizing firm with market power (i.e., a price-setting firm, such as Microsoft, Toyota, or Starbucks), why do we NOT expect to see on an ongoing basis shortages of goods or services provided by these firms? Explain briefly (40 - 50 words would be about right).
3. Explain why Porter and Thomas think sport ticket prices that are so low as to cause persistent shortages are in fact rational, profit-maximizing pricing strategies. No more than 75 words please. You can do an excellent job with 40 - 50 words if you are concise.

B. Discuss a situation in which either your firm used cost-plus pricing or you did business with a firm that used cost-plus pricing. Explain why this was a poor choice for the firm's price making decision. What should the firm have charged to maximize profits?

Be sure to use the ideas of marginal cost versus average cost in your discussion.

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Sports economists believe that ticket prices are too low because empirical studies show that the ticket prices were lower than what would be expected from profit-maximizing team owners. From empirical evidence, the economists found that this was a deliberate strategy of team owners. Professional sport teams purposefully set ticket prices in the inelastic region of demand. This leads to persistent occurrence of excess demand. For example, half of NFL teams advertise their season ticket waiting list.
For any price setting firm such as Microsoft or Toyota, we do not expect to see a shortage on an ongoing basis because these firms price their products ...

Solution Summary

The response provides you a structured explanation of how ticket prices are fixed in sport events . It also gives you the relevant references.

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The purpose of this article is to review the logistical aspect of planning a major sports event. Various speculators and theorists developed profound statements as to the importance of planning a major event. Some researchers believe that planning a major sports event would bring unwanted attention to a region whereas other theorists suggest that planning a major sporting event would strengthen the country's economy by bringing much needed exposure for travel and tourism. Although 'elite' spectator-driven sporting events renders significant benefits for all parties involved (i.e. community and various stakeholders with common interests), the ability to plan and prepare for such an event has a series of difficult challenges which include; promoting, comprehensive research geared specifically to identifying the target audience, establishing the type of visitors the sporting event will attract, as well as the financial obligations needed to fulfill expectations. There are several factors to consider when planning an event which is the sole purpose of this article to discover what is entailed, to discover the market potential, the impact effective event planning will have on a country's main objective, and to predict the future demand of the specified sporting event.

- Research questions/Hypotheses

Identifying the unknown variables:

? How many international supporters would arrive at the event?

? How long would visitors stay to witness the event?

? What type of accommodations would be more appropriate for visitors?

? What accommodations would visitors expect?

? What is the best way to entertain visitors?

- Background literature to support research

? World Cup Competitions

? 1999 Rugby World Cup

? 2002 Soccer World Cup

? 2007 Cricket World Cup

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