Price Discrimination | Amusement Parks
JWI 515: Assignment Four: Price Discrimination
Amusement Parks
Professor Serluco
Managerial Economics
Charles W. Slaven
November 30th, 2014
Introduction
Consider these Amusement park pricing scenarios:
Six Flags Discovery kingdom sells its annual season pass for $59.99. According to its website, “Buy your Season Pass for $59.99, just $14 more than a one-day admission.”
Bush Gardens Dark Continent. sells its Fun Card for $95.00. According to its website, “Pay for a Day, Get now through 2015 FREE.”,
Now why would they give away an unlimited entry annual pass for an extra 25% over the single entry price?
What is common in these pricing scenarios?
All these businesses are practicing what economists call, “Metered Price Discrimination“, or what marketers describe as, “Customer Margin”. It all starts with, “price discrimination” – charging different customers different prices.
Customers differ in the value they get from a product/service and in how much they are willing to pay for it. For each price point you set, there will be different number of customers willing to pay that price. That is your demand curve. The goal is to find the price that maximizes profit. There are many different ways to monetize the customer and Amusement parks offer us a great opportunity to examine several of them. As in the example above, Amusement Parks employ multiple price discrimination strategies when establishing ticket prices in order to increase overall attendance but make up for the lost single entry fee revenue from the subset of customers willing to pay set pricing scale at park concession stands, gift shops, diners and restaurants. This is Metered Price Discrimination – some customers get away with paying the low “entry fee” while others pay more by consuming additional services at different prices. Discrimination can take several forms and those presently employed in the amusement park industry begins with an exploration of spatial discrimination.
Spatial
Amusement Parks
Professor Serluco
Managerial Economics
Charles W. Slaven
November 30th, 2014
Introduction
Consider these Amusement park pricing scenarios:
Six Flags Discovery kingdom sells its annual season pass for $59.99. According to its website, “Buy your Season Pass for $59.99, just $14 more than a one-day admission.”
Bush Gardens Dark Continent. sells its Fun Card for $95.00. According to its website, “Pay for a Day, Get now through 2015 FREE.”,
Now why would they give away an unlimited entry annual pass for an extra 25% over the single entry price?
What is common in these pricing scenarios?
All these businesses are practicing what economists call, “Metered Price Discrimination“, or what marketers describe as, “Customer Margin”. It all starts with, “price discrimination” – charging different customers different prices.
Customers differ in the value they get from a product/service and in how much they are willing to pay for it. For each price point you set, there will be different number of customers willing to pay that price. That is your demand curve. The goal is to find the price that maximizes profit. There are many different ways to monetize the customer and Amusement parks offer us a great opportunity to examine several of them. As in the example above, Amusement Parks employ multiple price discrimination strategies when establishing ticket prices in order to increase overall attendance but make up for the lost single entry fee revenue from the subset of customers willing to pay set pricing scale at park concession stands, gift shops, diners and restaurants. This is Metered Price Discrimination – some customers get away with paying the low “entry fee” while others pay more by consuming additional services at different prices. Discrimination can take several forms and those presently employed in the amusement park industry begins with an exploration of spatial discrimination.
Spatial
References: Hirschey, Mark; Managerial Economics 12th Edition, Cengage Learning, Mason OH, 2009 President and Fellows of Havard College, Price Discrimination, Havard Business Schools Publishing, Boston, MA 02163, 1993