Comparison with the One Price Alternative

To gauge the implications of this new two-tier ticket pricing practice, it is interesting to contrast the resulting price/output and surplus levels with those that would result if MSU maintained its current one-price ticket policy.

If tickets are offered to students and the general public at the same price, the total amount of ticket demand equals the sum of student plus general public demand. The student and general public market demand curves are

Under the assumption PP = PS, total demand (QT) equals

and which implies that

These aggregate student-plus-general-public market demand and marginal revenue curves hold only for prices below $125, a level at which both the general public and students purchase tickets. For prices above $125, only nonstudent purchasers buy tickets, and the public demand curve PP = $225 - $0.005QP represents total market demand as well. This causes the actual total demand curve to be kinked at a price of $125, as shown in Figure 12.2.

The uniform season ticket price that maximizes operating surplus (or profits) is found by setting MR = MC for the total market and solving for Q:

Operating surplus (profit) = TR - TC

Observe that the total number of tickets sold equals 60,000 under both the two-tier and the single-price policies. This results because the marginal cost of a ticket is the same under each scenario. Ticket-pricing policies featuring student discounts increase student attendance from

32,000 to 40,000 and maximize the football program's operating surplus at $2.5 million (rather than $2.1 million). It is the preferred pricing policy when viewed from MSU's perspective. However, such price discrimination creates both "winners" and "losers." Winners following adoption of student discounts include students and MSU. Losers include members of the general public, who pay higher football ticket prices or find themselves priced out of the market.

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