Want to go see a Northwestern University basketball game? No? Me neither.
But regardless, Jeff and Sandeep at Cheap Talk are using auction theory to sell actual tickets to two Northwestern basketball games this season. Here’s a description:
We are using a system which could roughly be described as a uniform price multi-unit Dutch Auction. In simpler terms we are setting an initial price and allowing prices to gradually fall 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 here is the key feature of our pricing system: as prices fall, you are guaranteed to pay the lowest price you could have got by delaying your purchase. 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.
Overall, it’s a great natural experiment in implementing a theoretical model of a market for tickets. And – what I always like to see – it’s a demonstration that, despite protestations to the contrary, people who do economic theory are not detached from working on “real world problems.”