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The Connection Between Your Credit Score and Your Love Life
October 5, 2015
Why Cheap Oil Can Be a Curse
October 7, 2015Sometimes record attendance can be a problem.
When too many people show up at Disneyland, they endure “gruelingly long lines” and gate closures. After all, everyone likes to visit during good weather, holidays and three day weekends.
Where are we going? To how price makers can control demand.
Disney’s Problem
Visiting for a day at Disneyland, an adult will not pay more than $105 and at Walt Disney World, that top price is $99. Add the children and a spouse and you still have an affordable vacation for a middle class family. Those low prices though create traffic peaks that could make a visit somewhat unpleasant.
How to spread attendance? Disney is considering dynamic pricing.
A Dynamic Pricing Example
At the top rated Chicago restaurant Alinea and its sister, Next Restaurant, what you pay (a prepaid ticket) depends on the day and the hour. So yes, as you can see below, the same meal on Saturday will cost more than Wednesday and a 5:30 table is cheaper than 7:00.
Next Restaurant online reservation prepaid tickets for Saturday, October 10, 2015:
Next Restaurant online reservation prepaid tickets for Wednesday, October 14, 2015:
We could say that like Disney, Next Restaurant, hopes to spread attendance. Whereas Next makes Wednesdays and 5:30s cheaper, Disney could charge us less for rainy winter weekdays.
Our Bottom Line: Monopoly Power
Whenever they have some monopoly power, business firms act more as price makers than price takers. Price makers have the power to shift their own supply curve to a new position. As a result, they help to decide where supply will cross demand to determine price. By charging different prices for the same product, they can cater to different consumers with different demand curves and make less desirable alternatives more attractive.
Price takers have much less control. Their price is determined by the intersection of a supply curve that many similar firms create and a demand curve shaped by many consumers.
While Disney knows it has monopoly pricing power, it still is concerned about our response to dynamic pricing.
