Group for Research in Decision Analysis


Optimal Pricing and Advertising Policies for an Entertainment Event

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The paper determines optimal pricing and advertising policies for an entertainment event, taking into account diffusion effects and a last-minute market. We consider a setup where period-by-period constant prices are combined with continuous advertising. The organizers of the event sell tickets at regular price and advertise the event during an initial period of time. If tickets are not sold out by the end of this period, there is a last (short) period before the event in which tickets are sold at a reduced price. In this period no advertising is done.

We find that advertising should be decreased over time, as word-of-mouth communication becomes more intensive. Depending on the values of the model parameters, it may be optimal not to advertise at all, to advertise at a positive rate until the end of the regular sales period, or to stop advertising at some earlier instant of time. If word-of-mouth effects are absent, advertising (if any) should be done at a uniform rate. In the last-minute sales period, the organizers implement a feedback pricing policy such that the selected price depends on the number of tickets that have been sold in the regular sales period.

, 24 pages