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.