4 Dec 2015

Amusement Parks poke holes in your wallet

Kelly writes*

We've probably all been to amusement parks. Disney theme parks have some of the highest profits. Disneyland Paris, for example, has generated $700 million in profits opening in 1992.

Disneyworld plays out various strategic schemes that makes us believe that they are offering the best deals, and we fall for them. Every. Single. Time. Most of these strategies can be explained through microeconomic reasoning. These theories are played with us before we even enter these amusement parks.

Price discrimination is played with in various ways to its consumers, specifically third degree price discrimination. This means that they offer special prices to special groups. The most common and obvious price discrimination is to age groups. Disneyland offers different prices for kids and for adults everyone. Although to us, it may seem rather normal that kids are cheaper than adults. But why? Don’t we all benefit from the same entertainment that they offer? We all eat the same things (that are over-priced may I add – but more about that later). But the logical reason is by making kids cheaper – although not be a huge amount – is because it will attract more families, as Disneyland is a family based.

But then there have also been signs of geographical price discrimination. Which is one of the main reasons why Disney world Florida is able to enjoy such high profits. Tourists from around the world all want to experience a day at Disney, while the residents of Florida aren’t too eager to go to this attraction again if it was priced at the price given to tourists, as they have likely experienced it already. This would result in lost profits for Disney Therefore, they have come up with the brilliant idea of the “Florida Resident” discount. As on most days when parks haven’t reached its full capacity of visitors, the marginal costs of adding an additional guest is small due to its sunk and fixed costs. Hence, Disney is able to accommodate the demographic discrimination by lowering the marginal revenue that is guaranteed by Floridian visitor. Thus, it would be most logically for a price maximizing firm to charge less, as long as prices are set above the marginal cost of each visitor and still keep the decency of the price structures. Although there is price discrimination, I must admit, this is a innovative way of maximizing its profits to its millions of visitors.

And now lets briefly look at what happens when we finally enter these magical Disney amusement parks. Because once we enter, we have entered a monopoly; a monopoly over everything. Whether it is food, drinks, merchandise, toilets or any other service we can purchase. This is because if we want to buy anything, the only place we can buy something is from them, as there are no substitutes or cheaper choices available to us. So we have no option but to buy food and drinks from there and from them, thus, setting its prices way above average (but somehow still keeping its integrity). Just like their merchandise, there is no other place where we can buy “the real deal”, so we are likely to buy it there, especially tourist as its an experience to remember. Yet again, Disneyland is able to maximize their profits.

Bottom Line: Disney’s amusements park will always win and maximize its profits due to its innovative and strategic microeconomic theories that they play on us, its consumers, on a daily basis. There is no escaping or saving our money if we want to enjoy a day at their amusement parks.

* Please comment on these posts from my microeconomics students, to help them with unclear analysis, other perspectives, data sources, etc.


Simon van der S said...

In response to the blog post: you raise some interesting points on how Disney attracts customers, and how they make large profits. What I found surprising was the tone of the post. It seems that you feel that Disney's high pricing is a grave injustice, and that customers are lured into a high-cost trap. I would agree with you that Disney's high prices would be unfair if Disney would have a monopoly on theme parks, or in the case that you can't live a decent life without visiting their amusement park. However, both are not true. Just as it seems unlikely that people expect to have a cheap time, because the entry tickets alone are already quite high.
So, people willingly and knowingly enter Disney's theme park, whereas I'm sure there are cheaper substitutes in the region. Doesn't this then mean that the utility of Disney is simply very high? I.e., wouldn't you say that the fact that people go is 'proof' that the price reflects the utility gained from going?

In response to Zack: What would a non-subjective experience of an amusement park look like? I think the opposite sounds ridiculous, namely that there would be one objective experience, which each and all visitors experience the same.

Zach Malik said...

This is a very interesting post. My sister has an almost unhealthy obsession with Disney and everything Disney related. Last year my mum and sister went to Disneyland Paris and, inevitably, spent an excessive amounts of money. My dad, understandably, was both staggered and upset by the total expenditure from that week.

When my dad inquired about why my mum and sister felt it was appropriate to spend so much money, my mum's response was very defensive but it was like she was questioning my dad's love for her and my sister. My mum's response consisted of only two questions: Should we have not eaten or drunk anything? Are you not happy to spend money on your daughter?

At this point, in attempt to close off the discussion, my sister added herself to the conversation and said the following: "the amount of money spent was a reflection on us maximizing our stay as we tried to get the 'full experience'. Purchasing the merchandise would only act as proof that we went, in case my friend choose not to believe me".

What is surprising with what my sister said is that it perfectly embodies what you described in the second half of your blog. Personally, I believe that saving is near impossible when at any amusement park and, therefore, I recommend spending enough that helps one achieve his/her version of the 'full experience'. This is because I feel it is a notion that is fairly subjective.

What do you think? Is the experience of an amusement park subjective, or do you believe that there are specific activities that one must carry out, before he/she can say "I had the full experience"?

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