Dynamic Pricing Behavior in Perishable Goods Markets: Evidence from Secondary Markets for Major League Baseball Tickets Andrew Sweeting∗ Duke University and NBER January 2012 Abstract Sellers of perishable goods increasingly use dynamic pricing strategies as technology makes it easier to change prices and track inventory. This paper tests how accurately theoretical models of dynamic pricing describe sellers’ pricing behavior in secondary markets for event tickets, which are a classic example of a perishable good. It shows that some of the simplest dynamic pricing models describe seller behavior very accurately, and they explain why sellers cut prices dramatically, by 40% or more, as an event approaches. The estimates also imply that dynamic pricing is valuable, raising the average seller’s expected payoff by around 16%. ∗Mailing Address: Department of Economics, 213 Social Sciences, Box 90097, Duke University, Durham NC 27708. Email:
[email protected]. Stephen Finger provided excellent research assistance. I would like to thank the Editor, two referees, Ian Gale, Brett Gordon, Michael Grubb, Igal Hendel, Preston McAfee, Jimmy Roberts, Scott Savage, Justin Wolfers and numerous seminar participants for comments that have greatly improved the paper. All remaining errors are my own. A National Science Foundation grant (SES 0850441) supported this research. 1 1Introduction Sellers of perishable goods, such as airlines, sports teams, concert organizers and retailers of fashion and seasonal items, have to sell inventory within a fixed time horizon. These firms increasingly use dynamic pricing (DP) strategies, where they change prices as a function of both inventory and the time remaining, as technology makes it cheaper to change prices, track inventory and model consumer behavior.