From Saturday's "Sporting News Today":

Get your BCS sod

Parts of the Rose Bowl turf from Thursday night’s Texas- Alabama BCS National
Championship game will be sold in freeze-dried, encased three-inch by three-inch squares for $99.99, Sports Business Journal’s Don Muret reported.

Stadium Associates, Major League Baseball’s official licensee for selling authentic
sod from big-league parks, planned to cut 75,000 pieces of turf from the two end zones and 50,000 pieces from midfield and sell them.

The end-zones of a football field are 30ft x 160ft each for a total of 9,600 ft-squared or 1,382,400 inches squared. This area would be equal to 153,600 nine-inch squared pieces of sod, more than enough to provide the 75,000 pieces advertised. The rest of the field is 300ft x 160 ft for a total square footage of 48,000 ft-squared or 6,912,000 inches squared. There is plenty of sod available for the 50,000 pieces to be cut from midfield.

Let's start with what we know: If all pieces are sold then total revenue will be (75,000 + 50,000)x99.99 = $12,498,750 in total revenue.

Let's start making some assumptions (for illustration purposes):

Let's assume that the used field was purchased for $5 million.
Let's assume that the marginal cost for preparing each piece is $10.

These assumptions yield an average fixed cost of $40.
These assumptions yield an average total cost of $10.

Given the assumption of MC=$10 and the factual $99.99 price, the price elasticity of demand (e) for the sod-selling monopolist would this be:

1/|e| = (P-MC)/P

1/|e| = (99.99-10)/99.99 => 1/|e|= 0.0.8999 => |e| = 1.111

This would suggest that sod from the game is (barely) a luxury good (duh, thanks to Mark S. for the pointer) barely price elastic. I would buy that if the marginal cost is relatively close to zero.

The average total cost for each piece of sod is $50 and total profits (assuming all 125,000 are sold) would be $6,248,750. This would represent a total profit margin of approximately 100% (profit is 99.98% of total cost).

If the sod-selling monopolist is only going to use 125,000 of a possible 768,000 3x3 inch squares, what do they do with the remaining sod? Perhaps they have to pay to dispose of it. If that costs another $500,000, this would reduce the profit of the enterprise to $5,748,000. Still not bad for a little bit of effort and creativity.

What if the Rose Bowl committee negotiated for a higher fixed price for the field, perhaps to provide additional monies for scholarships or whatever sounds good. How high could they push price before driving the sod-selling monopolist to zero accounting profit?

(P-ATC)Q = 0 => ATC = P => AFC + 10 = 99.99 or an average fixed cost of 88.99 or a total fixed cost of 88.99x125,000 = $11,123,750.

What if the Rose Bowl committee were to charge a price for the field that would allow the sod-selling monopolist a "reasonable" return of, say, 10% gross profit instead of nearly 100%? This would reduce the price to nearly $10 million. I doubt (but have no proof) that the price of the used sod was remotely close to this.

Rather, let's go the other direction and assume that the the field sold for only $1 million. If we still assume a $10 marginal cost per piece, this would reduce the average total cost to $18 and increase total profit to (99.99-18)x125,000 = $10,248,750!! If there were still $500,000 in disposal costs, the profit would be $9,748,750.

So much for the supply side. Is this an example of a monopolist putting their customers over a barrel and extracting unwarranted monopoly rents? Relative to a perfectly competitive market, perhaps, but such a market couldn't exist in this case. That said, there is likely to be considerable consumer surplus in this market, especially for Alabama fans. What that consumer surplus equals is impossible to calculate on the back of an envelope, however it is likely to be positive and, as such, this "emergent" market will make any number of college football fans better off than they would have otherwise been.

I wonder how many men-on-the-street are willing to celebrate that?