The Economics Behind The Oilers' Ticket Prices

For those who have been thinking about going to an Edmonton Oilers game recently, how have you afforded it?

Four tickets, parking, food, and a couple of drinks can easily add up to $1,000 for the night, and that's assuming you aren't sitting close to the ice.

I'm studying honours economics at the University of Alberta, and there's a pretty simple explanation for why the Oilers can charge as much as they do.

For transparency, this is an extreme oversimplification of how pricing works. There are different ticket categories, season-ticket packages, resale markets and plenty of other factors that influence what somebody pays to attend a hockey game.

However, the graph below shows how a monopolist determines the price and quantity that maximize its profits, and I think it's a good illustration of why Oilers tickets can be so expensive.

The red line represents demand, the blue line represents marginal revenue, the pink line represents marginal cost, and the purple line represents average total cost.

Marginal revenue is the additional revenue a business receives from selling one more unit, while marginal cost is the additional expense of providing it. In this case, we're treating each ticket as one unit.

The point where marginal revenue equals marginal cost determines the profit-maximizing quantity, marked q* on the graph.

To find the price, you move up from q* until you reach the demand curve, which tells you how much consumers are willing to pay for that quantity, marked as P*.

The blue shaded area represents economic profit, which is the difference between the price charged and the average total cost of providing the tickets, multiplied by the number sold.

Edmonton has one NHL team, and if you want to watch Connor McDavid and Leon Draisaitl play hockey in person, you're going to Rogers Place. There are other entertainment options around the city, of course, but there isn't another NHL team offering the same product at a lower price.

That gives Oilers Entertainment Group considerable market power (the ability to price above one's marginal cost), especially on nights when demand for tickets is high, such as a Habs game.

The organization can charge what people are willing to pay, and in this market, there are plenty of people willing to pay quite a bit, though not as many as there are seats available.

The profit-maximizing quantity, q*, is lower than the maximum available quantity, marked by q bar.

In this simplified model, the monopolist makes more money by selling fewer units at a higher price, than selling more units at a lower price.

That means maximizing profits and maximizing the number of people who can attend a game are two different things.

Some things the graph can't account for: Rogers Place has a fixed number of seats, and the Oilers operate on a tiered seating basis. This graph also doesn't tell us whether the organization is deliberately pricing tickets in a way that leaves seats empty. We'd need its actual pricing, demand and cost data to determine that.

However, it does explain why an organization with the Oilers' market power can charge prices that seem ridiculous to the average fan, and why they might have little interest in lowering those prices.

That's a pretty bad look for Oilers Entertainment Group.

Edmonton has supported this team through some absolutely miserable seasons, including a decade of darkness where fans kept showing up, buying jerseys, and paying to watch a team that sucked.

Now they've got a product worth watching, and it's priced at a rate most families can barely afford.

Say you're paying $200 per ticket for a family of four in the upper bowl, obviously. That's $800 before food, parking, or anything else at the arena.

Another $100 is pretty easy to spend repeatedly, and it quickly adds up to nearly $1,000 for a regular-season hockey game. That is a significant expense for one night by the average person's standards.

I understand that attending an NHL game is a luxury, and the Oilers are a business that charges prices that make them money, and as long as people continue buying tickets, there's little economic incentive to make them substantially cheaper.

However, it's disappointing to see a team with so much community make it so expensive for that same community to watch.

From an economics perspective, I can understand why they're taking advantage of the fact that ticket prices can be that high, I just think it's unfortunate that taking your kids to see McDavid play can cost as much as a small family vacation.