Real Options Applied to Consumer Goods: Maximizing Profits and Fan Welfare

Abstract

The use of pre-sale options for tickets is underutilized in sports. In this study, we show that the use of pre-sale options increases profits, but also increases consumer utility—making both parties better off. Thus, the efficiency gains and profit gains make incorporating options with advanced selling, as opposed to just advanced selling, an optimal strategy. Through this ticket pricing strategy, the organizer can realize a significant increase in profits from a separating equilibrium pricing strategy while simultaneously consumer welfare increases as fans know, with certainty, they have tickets to the game if their team participates. If these options were offered by participants instead of the organizer it also allows the participant to smooth their revenues over time.