The Brewster

It’s time for a lesson in applied microeconomics. I taught Advanced Placement Microeconomics for many years; it is a rigorous course that is comparable to the introductory course for economics majors in college.

Most of you will be familiar with the concept of a demand curve. They are typically downward sloping and look like this:


As an engineering student, I always thought it was odd that price (the independent variable) was on the vertical axis and quantity (the dependent variable) was on the horizontal axis, but I got over it.

A demand curve represents the quantity demanded over the range of possible prices. As price is increased, the quantity demanded will naturally decrease. Hence the downward slope.

Each team has their own unique demand curve. The slope of the curve is related to the elasticity of demand, i.e., Fan Loyalty. If a team has fiercely loyal fans (low elasticity of demand), the slope will be quite steep; the quantity demanded will change very little with price. If Fan Loyalty is low (high elasticity of demand), the slope will be more horizontal, yielding large changes in quantity demanded for small changes in ticket price. When I taught microeconomics, I would use crack cocaine as an example of a good with very low elasticity of demand and lobster as an example of a good with very high elasticity of demand. Perhaps Taylor Swift tickets might be a more contemporary example of low elasticity.

As Fan Interest changes over time, the demand curve will shift to reflect this. Assuming Fan Loyalty remains constant, an increase in Fan Interest will shift the demand curve to the right. This is called an “increase in demand.” At any given ticket price, more tickets will be sold. If Fan Interest decreases, the demand curve will shift to the left, representing a “decrease in demand.” At any given ticket price, fewer tickets will be sold.


We can use the demand curve to forecast total gate revenue, which is simply the product of ticket price and the quantity of tickets sold at that price. This is represented by the area under the demand curve.

(1 of 3) Continued in next post in this thread

When demand is relatively inelastic (steeper = high Fan Loyalty), an increase in ticket prices from P1 to P2 will yield greater total revenue. You can see this in the comparative sizes of the areas under the curve, P2 x Q2 > P1 x Q1.

When demand is relatively elastic (less steep = low Fan Loyalty), an decrease in ticket prices from P1 to P2 will yield greater total revenue. You can see this in the comparative sizes of the areas under the curve, P2 x Q2 > P1 x Q1.

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Now let’s consider how total revenue changes over the length of the demand curve. Let’s begin with a typical demand curve:


Consider the area under the curve at different price points. You can simply count the boxes. You will see that the area under the curve (total revenue) peaks at a price of 3.

Now let’s graph total revenue as a function of price:


There is a clear maximum (slope = 0) here at a quantity of 3, which corresponds to a price of 3. This is the price that will bring in the greatest revenue.

The Laffer Curve is an example of a total revenue curve. Laffer grossly oversimplified tax rates to arrive at his famous graph. It was unfortunately determined empirically that our country resided on the left side of the curve, not the right, resulting in a dramatic decrease in total revenue as tax rates were slashed.

CONCLUSION

• Fan Loyalty determines the slope of each club’s demand curve.
• Fan Interest determines the position of each club’s demand curve.
• Total revenue is optimized by locating the maximum of the total revenue curve. See my post about how to go about this here: How to Maximize Gate Revenue

The effect of higher ticket prices on Fan Loyalty and Fan Interest over time is unclear. It has been suggested that the lower attendance resulting from higher ticket prices could have a negative impact.

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Boy, politics hasn't changed a bit since then.

Fun Facts:

• I worked for Ross Perot's Electronic Data Systems in Dallas.
  

  

• My ex and I attended a late night welcome home gathering of EDS employees at a private room in DFW when Ross returned from Iran with the EDS hostages and Col. Bull Simons. Ross spoke at length about how they pulled it off. It was later made into a book (On Wings of Eagles) and a movie.
• I once inadvertently knocked Perot to the ground in the company cafeteria. He was very gracious. I was mortified.
• He was the richest man in American when he ran for president. Unlike today's billionaires, he took it seriously.
• I voted for him.

BaseClogger wrote: ↑

Thu Jun 12, 2025 4:00 pm

Boy, politics hasn't changed a bit since then.

If only that were true.

I voted for him, too. In fact, he's the first presidential candidate I voted for.

Nice 3 piece suit, BB looking sharp!

look at the size of that tie knot!!! - LOL - JK

Perot was wacky.