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Purple Pricing: Real-time Demand-based Ticket Pricing

NEW YORK (MainStreet)—Imagine buying tickets for your favorite sports, music or theatre event -- getting the best seat in the house and being guaranteed the best price, or your money back. No, don't expect William Shatner to waddle out from behind the curtain, Karate-chopping high ticket prices. Two Northwestern University economics professors have developed a new dynamic pricing model that maximizes venue profitability while ensuring that patrons receive the best seat at the best price.

Buy a ticket at full price today, if the price goes down you get the difference refunded to you. You never over-pay for a seat -- and ticket prices always go down. Never up.

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It is a modified Dutch auction the professors call Purple Pricing. Sandeep Baliga and Jeff Ely, economics professors at Northwestern University, came up with the idea.

In a Dutch auction, the price starts off high and is lowered until someone buys. "We are using a system which could roughly be described as a uniform price multi-unit Dutch Auction," Ely says on his blog Cheap Talk. "We are setting an initial price and allowing prices to fall gradually until either the game sells out or we hit our target price. Thus we are implementing a form of dynamic pricing but unlike most systems used by other venues our prices are determined by demand, not by some mysterious algorithm."

But there's a key feature to the pricing system.

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"As prices fall, you are guaranteed to pay the lowest price you could have got by delaying your purchase," Ely writes. "That is, regardless of what price is listed at the time you reserve your seat, the price you will actually pay is the final price. It also removes another common gripe with dynamic pricing, different people paying different prices for the same seats. Our system is fair: since everyone pays the lowest price, everyone will be paying the same price."

As prices go down, ticket buyers at higher prices get refunds for the difference. The goal is to maximize ticket revenue and re-capture income lost to secondary ticket markets like Stub Hub.

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"Purple pricing can be applied to any service which is provided at a certain time in the future, has a restricted capacity and is reserved in advance," Ely told MainStreet. "We have had numerous discussions with professional sports teams and other entities facing similar pricing problems."

In fact, Ely and Baliga are planning to roll out the "fan friendly" pricing model for the upcoming college football and basketball season and are seeking a software developer to help them build out the technology.

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--Written by Hal M. Bundrick for MainStreet

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