The Income Demand Effect on the Pricing of 2003 World Cup in Australia

Table of contents

Introduction

At the 2003 Rugby World Cup held in Australia, rugby officials set ticket prices for all matches in advance. However, when the tickets went on sale some seats were sold out while others remained unsold. This assignment will aim to firstly, prove that the reason for some matches selling out and others not, was due to the price and number of seats available in each category. Secondly, show the effects the popularity of a match has on demand and the amount charged. Finally, how the economic situation contributing to average incomes influences the amount of seats purchased. To prove this a number of supply and demand analysis graphs and income elasticity workings will be offered in order to further assist the reader in understanding the economic concepts that contribute to the given issue. Definitions

Income Elasticity Of Demand: A Measure of the responsiveness of the quantity demanded to a change in income.

Supply & Demand

Market supply and demand analysis is a fundamental aspect in any business today to decide how much a good or service will be priced, and is also the basic tool of microeconomic analysis. In Australia’s capitalist economy the consumer has the right to make the choice on which good or service they wish to purchase, this is also referred to as Consumer Sovereignty (Layton, Robinson & Tucker., 2002, p.58). This concept played a large role in the 2003 Rugby World Cup, in that the customer was able to choose the match they watched and the category they wished to sit in, the choice bring Category A, B or C. ‘A’ being the most expensive with the most number of seats and ‘C’ being the cheapest with the least amount of seats.

Argentina vs. Romania

The graphs above show the prices and corresponding supply and demand analyses for the match of Argentina vs. Romania. From these graphs we can see that before the non-price determinant (refer to non-price determinants section) had its effect on the demand curve Category A’s (Figure 1) position on the supply curve is above the equilibrium. This indicates Category A had more supplied seats than consumers demanded thus resulting in a surplus. This is also true to Category B (Figure 2) but to a lesser extent due to the lower price of the tickets. On the other hand, Category C (Figure 3), as seen in the graph was below the equilibrium and thus the demand for this ticket exceeded the amount supplied, resulting in a shortage.

However, once the non-price determinate took its effect on the graphs, causing a shift to the demand curve, Category A’s position of a surplus exceeded its self even more, along with Category B. Furthermore, Category C moved above the equilibrium resulting in a surplus like Category A and B but to a lesser extent.

Australia vs. England – Grand Final

The graphs above show the prices and corresponding supply and demand analyses for the match of Australia vs. England in the grand final. From these graphs it is clear that before the non-price determinant had its effect on the demand curve Category A (Figure 4) was well above the equilibrium and thus the supply was far greater than the demand and a major surplus occurred. Category B (Figure 5) was directly on the equilibrium, this indicates that the number of seats supplied was exactly equal to the number demanded. Category C’s (Figure 6) location on the supply curve indicates there was more demand for these seats than there was being supplied, thus a shortage occurring.

However, once the non-price determinant is taken into consideration it is seen that it altered Category A from a surplus to a shortage and furthered the shortage of Category B and C, indicating the entire stadium was sold out.

Non-Price Determinants

In deciding the prices for Categories at the Rugby 2003 World Cup, Officials would have taken into account the popularity of the match being played. In that a game between Argentina and Romania, would not attract spectators the way an Australia vs. England Grand Final would. This factor is the non-price determinant that indicates to the officials the possible price of tickets and also attributes to the shift in demand for each match. If the demand curve is shifted to the left, demand will decrease, if it is shifted to the right, demand will increase (McTaggart, Findlay, & Parkin., 1992). This is clearly seen threw each of the examples given. Figures 1, 2 and 3 show a shift to the left due to the lack of popularity for a game between what most would consider lower grade teams (Argentina and Romania), it also shows a lowering in price, hence the small amount charged for this game. Figures 4, 5 and 6 shows a dramatic shift to the right, as the popularity of a grand final with Australia participating, would boost consumer interest considerably, thus resulting in an extremely high price. Therefore, it is evident that the non-price determinant of popularity has a significant effect on each category in all matches in both the price of tickets and the demand for them.

Income Elasticity of Demand

Another factor that must be taken into consideration when analyzing the amount of ticket sales is the Income Elasticity of Demand. Firstly, there are two types of goods, normal good and inferior goods. Normal goods are purchased more as the consumer’s income rises, whereas inferior goods are purchased less (Wardle., 1982). This becomes evident threw the Income Elasticity of demand results.

Assumption (for all matches)

When tickets for the Rugby 2003 World Cup were being purchased the average consumer income rose from $4000 to $5000 per month (http://www.abs.gov.au/Ausstats, 2003). As a result:

Argentina vs. Romania

Assumption

The quantity of tickets demanded for this match increased from 52 000 to 54 500.

The above equation (1) shows the income elasticity of people attending the Argentina vs. Romania match, if there was an increase in income of $1000 per month, as +0.207. This indicates, firstly that the match is a normal good because consumers buy more tickets as their income rises. Secondly, ticket purchases are not very responsive to a change in income. Made clear threw the fact that when income rises buy 11.1%, ticket sales only increased by 2.3%. This is once again due to the limited popularity of this match.

Australia vs. England – Grand Final

Assumption

The quantity of tickets demanded for this match increased from 210 000 to 350 000

The above equation (2) shows the income elasticity of people attending the Australia vs. England grand final match, with once again a $1000 increase in income per month, as +2.25. This indicates that ticket purchases for this match are very responsive to a rise in income. When income rose by 11.1%, ticket sales skyrocketed by 25%. This is due to the large popularity of the match and the high prices charged to attend the game.

Conclusion

In conclusion there are a number of factors that contribute to why when the 2003 Rugby World Cup tickets went on sale some sold out while others remain unsold. The demand from consumers in relation to the number of supplied tickets varied due to the prices charged and the quantities of seats in each category. Furthermore, the non-price determinant of popularity dramatically affected both the price charged by officials for the matches and the variance in demands. The income elasticity of demand analysis showed how responsive each of the matches was to a rise in income and how it affected the amount sales of tickets. Therefore, it is clearly evident that setting prices for tickets in advance such as the 2003 Rugby World Cup is extremely difficult given the number of feasible variations to the demand curve. However, with large amounts of research it is possible for officials to set realistic prices and quantities in order to predict demand, and supply accordingly.

Reference List

  1. Layton, A., Robinson T., & Tucker, I.B. (2002). Economics for today. Victoria: Nelson Australia Pty Limited.

  2. McTaggart, D., Findlay, C., & Parkin.M. (1992). Economics, Sydney: Addison Wesley Longman Australia Pty Ltd.

  3. Wardle, H.T., (1982). Introductory Economics, New York: Elmsford.

  4. Australian Rugby. (2003). Rugby.com.au. Retrieved March 19, 2004,

    http://www.rugby2003.com.au/ticketing/prices.asp.

  5. Household Income and Income Distribution, Australia. (2003). Retrieved March 20, 2004, from http://www.abs.gov.au/Ausstats/abs

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