An Idea For Lalit Modi: Dynamic Pricing - An Awkward Corner

An Idea For Lalit Modi: Dynamic Pricing

Niranjan Rajadhyaksha - Thursday, May 21, 2009 7:16 PM

I remember that many years ago one of the major soft drinks multinationals was test marketing a new dispensing machine that would charge according to the weather --- more for a can on a hot day and less on a cold day.

This machine reportedly had an inbuilt system to measure the outside temperature. In theory, prices could fluctuate every minute and in every market.

Now a baseball team is trying out a variant of this idea according to this story in the New York Times.

"... because teams set their prices months before opening day and resist changing them later, they have trouble reacting to the unexpected, like the weather, winning and losing teams or, this year, the ferocity of an economic downturn.

The San Francisco Giants are experimenting with a possible solution — software that weighs ticket sales data, weather forecasts, upcoming pitching matchups and other variables to help decide whether the team should raise or lower prices right up until game day."

Now here's an idea that could make Lalit Modi's eyes light up.

The Free Exchange blog describes this as stochastic pricing.

 

 

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7 Comment

From N.Ramagopal

May 21, 2009 10:48 PM
Dandekar, in his tribute to Adam Smith's Wealth of Nations in a EPW paper, wanted a dynamic payment policy for teachers in higher education. Quoting Smith, Dandekar suggests that, as in Smith's day, teachers should be paid directly by the students. He held that students will be willing to pay teachers in accordance with how much satisfaction they derive from the lectures. So a teacher may get a higher pay in one academic year and a lower pay in another for the same course with the same syllabus, depending on how the students react to his or her lectures. This would also mean that teachers can charge fees in accordance with the demand for their lectures. I wonder how the university unions will react to such a dynamic payment policy.

From N.Ramagopal

May 22, 2009 11:16 AM
With reference to my comment on dynamic pricing in higher education, I should add that Dankekar notes that what students pay will depend crucially on how marketable they find the course offered by a teacher. Which means that the price commanded by a teacher will change in accordance with the market demand for the course,analogous to the price paid by consumers for soft drinks changing with the weather. Of course between teachers who offer the same course the price will depend on their pedagogical excellence. In the EPW piece Dandekar says that teachers and courses which do command a low price should be discarded, with exceptions for subjects deemed valuable despite low market demand, like Marathi and Sanskrit ( the examples given by Dandekar himself.) But in an interview he gave after the EPW paper was published he was uncompromising, stating that no subject should be exempt from dynamic pricing.

From Gulzar

May 23, 2009 5:16 PM
very interesting. some time back researchers Preethika Sainam, Sridhar Balasubramanian, and Barry Bayus had examined ticket pricing in sports markets where there is uncertainty about the teams that will play in a final event, and proposed an options market in ticket sales. This can hedege for uncertainty arising from weather, teams entering the final rounds etc, and is easy to administer and suffers from few market distortion possibilities. The authors claim that a model where fans can buy an option on a ticket well before the event and then decide on exercising the option, is not only beneficial to fans, but also more profitable for the organizers. In fact, the authors find that a ticket options model brings in greater profits for the organizers than both advance ticket sales and sales after the uncertainty is resolved. Harvard Professor Alvin Roth

From Gulzar

May 23, 2009 5:17 PM
very interesting. some time back researchers Preethika Sainam, Sridhar Balasubramanian, and Barry Bayus had examined ticket pricing in sports markets where there is uncertainty about the teams that will play in a final event, and proposed an options market in ticket sales. This can hedege for uncertainty arising from weather, teams entering the final rounds etc, and is easy to administer and suffers from few market distortion possibilities. The authors claim that a model where fans can buy an option on a ticket well before the event and then decide on exercising the option, is not only beneficial to fans, but also more profitable for the organizers. In fact, the authors find that a ticket options model brings in greater profits for the organizers than both advance ticket sales and sales after the uncertainty is resolved.

From rakesh

June 9, 2009 2:03 PM
having studied agricultural sciences,would like to contribute by saying that diversity is always beneficial.in the proposed pricing structure for professors,only the best will survive.now to agriculture,breeders use different traits from different species and varieties of particular species to create newer varieties with good traits of 2 different varieties.in the proposed scheme of things,heterogenity will suffer,thus reducing creativity.

From ajay

September 15, 2009 1:51 PM
Very Interseting concept... Sir...

From Minnie

October 10, 2009 3:51 AM
I don't know if Lalit Modi eyes lit up or not or what the stochastic name means (I only have 2 or 3 maybe more medical board degrees from different countries including usa and this word is way above my pay grade) but I know ticket scalpers always practice dynamic pricing. This would be a good time to research their pricing techniques as many of them date way before the computer and some even before the handheld calculator. Buh bye. Mumbai, not just for Marathis, amchi mumbai pann ahe.

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