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Inflexible Pricing

Few things frustrate me more than participating (or not) in “markets” where there is pricing inflexibility.Many of you I suspect hold a sour place in your hearts for ticket scalpers to sporting events. It is not clear why, however. Think about the service that scalpers provide. When there are more people interested in going to an athletic event than there are seats available – something has to ration those scarce spaces.

Since sporting franchises often do not raise the face value of the tickets to high enough prices to get the market to “clear” then either something else has to clear the market, or a middleman can come in and do the job in the secondary market. At least when it comes to sporting events, if you really want to go to one, then you have a way to do it – even if the company’s pricing policy is silly.

Now, I have long thought that certain sporting events should simply auction off some or all of the tickets to the event. If the concern is with equity issues, retain a portion of the tickets are below-market money prices and continue business as usual. But both franchises and customers would be much better served if there was an open and transparent market for tickets.

Imagine how the Super Bowl would work. The tickets would not have a face value on them. There would simply be 70,000 or so tickets sold into the open market, and these could subsequently be bought and sold on formal exchanges no differently than a stock. Now, I am not surprised at all that this is not common practice. What I am surprised about is that I am not aware of any place that has even experimented with a pricing structure like it.

Hence my frustration today when I went online to book a campsite for a weekend in the Adirondacks. My wife and I have somewhat awkward schedules, so it is hard for us to book events much more than 2 months in advance. And even then our plans change regularly. When I went to book a campsite, all of the ones I would have liked were sold out (the waterfront ones) while all of the inland sites were plentiful.

Now, that tells you that the relative prices of the sites are out of whack. Unlike ticket scalpers and other formal ticket exchanges, there is no way for me to contact the people who have made reservations at the waterfront sites to ask if they would be willing to exchange them – either for the site on another weekend, or for some dollar amount, or something else. Again, it is perfectly obvious why the campground manager sets a fixed tent site price to all sites – but it is not obvious why they do not at least experiment with having a transparent and flexible market for the other sites.

I am sure, for example, that weather may be bad on some weekend – or that the plans of people change. It would be very much in the interest of people to be able to exchange their sites (pre-paid) in those events. For example, if I had a site booked and paid $40 for a weekend, and the weather looked to be bad – I probably would forego using the site since we have two small children. If the campsite needs to honor my reservation, not knowing if and when I will show up, then that site will remain empty all weekend. If, however, I could resell it, I would do so for as little as $1 for anyone willing to spend a rainy weekend by the lake. That is an improvement for all parties. If you want to argue that the campground could realize that I will not show up, and then resell the site later on, at the very least you would think they would have an incentive to allow me to “resell” some portion of my fee/site back to them in the case of unforeseen events. It seems to me that the optimal amount of resale is greater than zero.

In any case, good economists must respect the observed outcomes as being the result of thousands of interactions between buyers and sellers trying different arrangements until each is mutually happy. So, in that light, there is something optimal about the pattern of fixed pricing we observe (e.g. it promotes certainty, it can serve an advertising function when prices are below market clearing levels, etc.) but that does not mean that there are no improvements to be made by entrepreneurs who wish to test whether or not this is true. So please, I urge some campground entrepreneur to give it a shot!

4 Responses to “Inflexible Pricing”

  1. Speedmaster says:

    I think the Sabres now use flexible pricing for their home schedule.

  2. Michael says:

    You know there is definitely something wrong when we the people have to pay to enter parks we supposedly own (or so the propaganda states). On top of that, in some places like Yellowstone, we also have the privilege of waiting in lines to get on “our land.” If parks are a public good, then why is it we can exclude somone? (And the “consumption” of one site obviously takes away from the ability of someone else to consume that same site.)

  3. tourpro says:

    It’s true that campgrounds should be sold like lodging. After all, both are similar business models which are based on a daily perishable inventory – like airline seats, and rental car days. Event reservations are another case, unless there are multiple generic opportunities like movie tickets.

    It’s much “easier” and logistically simplier to sell at a fixed price. Especially if it is a state-run enterprise with no profit-motive. Heck, just the implementation of Holiday and Weekend pricing would be an improvement. As it is, the price of state camping is so low that there is actually incentive in pre-booking multple sites/weekends, watch the weather, and then just eating the cancellation cost if needed.

    This doesn’t even cover the quality of the products. Where are you camping?

  4. Harry says:

    This land is your land,
    This land is our land,
    From California, to the New York Island!
    Hey!
    Let’s give three cheers for the government, federal, state, and local!

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