The Gluttons’ Pavilion at Dodger Stadium

Posted on May 24, 2007 by

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It’s amazing how often bad ideas become fads in American business. Luckily, in capitalism there’s a Darwinian process at work. Adopters of truly stupid ideas tend to go bankrupt—or at least wake up, smell the red ink, and get better advice. Eventually.

Which brings us to Your Los Angeles Dodgers.

No, I’m not going to bring up personnel decisions like paying the execrable Juan Pierre $44 million to not get on base for the next five years. That would be shooting fish in a barrel. I refer, instead, to the Dodgers’ embrace of the latest marketing fad: “all you can eat.”

Marketing gurus are waving this one-price-for-unlimited-quantity strategy like a magic wand, promising that it will unlock profits in everything from music downloads to long distance phone service. But the Dodgers mean it literally. According to a May 16 article in the Wall Street Journal titled “Free Eats Sell Bad Ballpark Seats,” the facts are these:

– Seats in the club’s right-field pavilion, which holds 3,000, sold for $6 to $8 last season and were mostly empty;

– This year, however, tix go for $20 to $40 (depending on the quality of the opponent and whether there’s a group discount or not);

– The higher price gets you UNLIMITED amounts of hot dogs, peanuts, popcorn, nachos, and soda (though beer, candy, and ice cream are still “a la carte”);

– Business is boffo in the Gluttons’ Pavilion (well, it’s actually called the “AM/PM All-You-Can-Eat Pavilion,” after its corporate sponsor, but that seems like a mouthful to me), with 8 of 18 dates sold out as of mid-May.

Predictably, the Dodgers have been denounced by pundits who accuse them of contributing to America’s obesity epidemic, and defended by the marketing types for banking more profits by ingeniously luring fannies to otherwise-empty seats.

As a mere economist, I’m prohibited from making sweeping moral pronouncements (especially about consuming nachos—mmm, nachos). But I’m pretty sure the anti-gluttony pundits have the better of this argument. What’s more, I suspect the gurus who think this is a moneymaker are wrong.

First, the gluttony problem. The thing is, “all you can eat” is not just bad if you’re obese; it’s bad on general principles, and the reason has to do with the function of prices and the concept of economic efficiency.

“All you can eat” just means you pay nothing for extra hot dogs or nachos—free eats! This is why marketing gurus think it’s magic. People love free stuff; the prospect has a magnetic attraction.

But, obviously, it costs resources to produce food. It’s not free, but rather sold at a zero price, which must be below cost. Under “a la carte” pricing, you have more wholesome incentives: weigh the value of your next wiener against its price or cost. If you buy it, economists applaud because we know you valued it more than it cost to produce; that’s efficient.

Under “all you can eat,” we can’t say that. Since the price of one more dog is zero, you’ll grab it even if the benefit to you is trivially small—and far below its cost of production. That’s a nice definition of gluttony, and it’s inefficient. Or, in plain English, wasteful and bad.

Might it be profitable? Time will tell. But there’s reason to be suspicious. What could be happening here is what economists who specialize in pricing strategy call “defection.”

Sure, the right field seats are full more often—but notice that overall Dodger Stadium attendance this year is DOWN from last season. As this is written, the Blue have played to an average of 44,972 fans per game, vs. 46,400 last year.

There are many possible reasons for this, of course (e.g., a grass-roots protest against the indignity of watching Juan Pierre try to hit?). But maybe part of the story is that some of the fans who used to buy good seats are now hanging out in the Gluttons’ Pavilion. Those eight sellouts, in other words, might not be a result of attracting new fans, but merely relocating some from the better seats.

Why relocate? Because of the signal being sent by this price structure. As everyone knows, ballpark food is priced at levels that should attract a Congressional investigation and, ideally, jail time for the perps. It’s every prof’s favorite example of monopoly pricing: once you’re in, you’re stuck.

What the Dodgers have done is give some of their fans—the ones who value cheaper food more than a better view—an out. Stay in the grandstand and pay an extortionate tab for dinner, or sit in right field and sacrifice sightlines for zero-price calories.

The whole thing might actually be costing the Dodgers money. True, prices in Glutton’s Pavilion have been set high enough to cover the team’s costs of all the food consumed. But one wonders if the “defectors” doing all the consuming out there might actually have spent more, all together, up in the grandstand at the mercy of those monopoly prices.

The Dodgers had better hope not. After all, they’ll need a lot of cash to dig themselves out of the hole they dug when they decided to sign Pierre.

–Steve Walters

Editor’s Note: For those who don’t remember, Steve is not just a brilliant writer but also a Professor of Economics at Loyola College.