On Monday, the New York Post’s beat writer for the New York Rangers, Larry Brooks, penned a column entitled “NHL Should Freeze Price Along with the Ice.” He argues that the NHL should place an across-the-board price freeze on tickets because of the looming economic recession. At first, this sounds like a nice fuzzy-wuzzy idea, for fans at least: whatever happens on Wall Street and in Detroit, you’d still only have to pay the usual $100 or so for a seat at Madison Square Garden. But examined more closely, the economics behind the price freeze are bad news for the NHL and for fans alike. So in case Mr. Brooks missed his macroeconomics in college, here’s a little review session.
There are a few fundamentals in any market. In this case, we are concerned with the market for NHL tickets. In this market, there are a certain number of tickets available for each team to sell, this number of tickets is the quantity we are concerned with. A price freeze, in economic terms, is a “price ceiling,” because it is a concrete limit on a product’s maximum price. This is a basic supply and demand graph with a non-binding price ceiling (which you can ignore for the purpose of this economics lesson):
Market without Price Freeze, graph courtesy of Wikipedia
The place where the supply curve intersects with the demand curve is called the point of equilibrium, and it determines where the price of NHL tickets should be in relationship to the quantity—the maximum people are willing to pay for the available tickets.
Now, another basic graph that shows the effect of a “price freeze”:
Market with Price Ceiling, graph courtesy of Wikipedia
Suppliers (NHL teams) cannot charge what they want for tickets, and some of them may be forced to drop out of the market, or at best, teams will feel a financial strain because they’re unable to charge enough for tickets to keep the team a profitable business. This would likely never be a factor for well off teams like the Rangers, but for teams in small markets and non-traditional hockey markets (Nashville, Tampa Bay, Phoenix) it might even cause clubs to fold which would lead to a reduction in the quantity of tickets in the market. A price-freeze also allows fans to buy the same tickets at a reduced price, demand will increase—of course, the cheaper the tickets, the more people want them. But there we have a disturbance in the equilibrium, as demand soars above supply which causes a shortage in tickets. I won’t get into deadweight loss—essentially the loss of economic efficiency that price ceilings cause—but I will mention that a price ceiling also increases the consumer surplus—the amount the consumer benefits from getting a product at less than the price he is willing to pay (pink on the graph)—while the producer surplus—the amount the producer’s benefit from selling a product above the market price—decreases. The problem with increasing the consumer surplus in the NHL is that most the teams really need that money, and the fans are already willing to pay the price of an NHL ticket because hockey is absolutely better live than on TV.
At first, a price freeze sounds nice to fans. It would seem like a nice gesture, one little assurance of consistency in a time when everything else is uncertain. But “price freeze” reduces the producer surplus—the economic benefit a team gets from fans who are willing to pay the highest prices for tickets. In some cases, nice gestures make for bad business, and in this case the hockey fans will pay for that bad business when their favorite team is forced to cut salaries or move to a better market. It might sound like cold capitalism, but if the Rangers and other teams can’t turn a profit, they won’t be around for fans to enjoy.
Even if you’re confused about graphs and price ceilings, just understand that it doesn’t make sense for any business (which all NHL teams are) to voluntarily limit its profits if there are fans who are willing to pay a higher price. In New York, there will always be fans willing to pay the market price for tickets, the price naturally determined by the demand.
One fan who read Brooks’s column commented: “I always feel like I have been taken advantage of every year and in the playoffs especially. I am one of those season subscription holders that is seriously considering bailing out next year.” That’s too bad, but it’s exactly the way it should work. When some fans become annoyed by ticket gouging and drop their season tickets, there are plenty of others who will step up and buy the tickets in their place. Madison Square Garden is constantly packed, despite having some of the highest ticket prices in the NHL. Even with the looming recession, a price freeze is foolishness. Let the supply and demand determine the price. If people can’t afford to go to games at a high price, than the demand will go down, and the price will eventually follow. The market works—even for hockey.