Optimal pricing and advertising policies for a one-time entertainment event


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We consider the problem of pricing and advertising a one-time entertainment event. We assume that the organizers want to sell all available tickets. Three pricing policies are characterized and contrasted, namely, dynamic price (DP), constant price (CP) and two-market price (TMP). In this last scenario, the selling season is composed of a regular price period and a last-minute price period, with the switching date between the two markets being determined endogenously.
We show that the price is monotonically increasing over time in the DP scenario and that the last-minute price is larger than the regular price in the TMP scenario. In all three cases, advertising is non-increasing over time, which is a feature often encountered in finite-horizon dynamic optimization advertising models. Finally, we compute the cost of simplification, which is the difference in profits under dynamic pricing and constant pricing. Among other results, we obtain that this loss is independent of the market size and increasing in the number of available tickets.

, 27 pages

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