Cooler heads
Cooler heads
Why are Glaciers National Park ticket prices so weird?
I'm currently on vacation in Patagonia, the southernmost region of Argentina. On Tuesday, I visited the Glaciers National Park (beautiful) and noticed something pretty odd: ticket prices were all over the place. A foreigner had to pay 2520 pesos to enter, a national resident just 610, students and local residents 130, and pensioners and children entered for free. Plus, you got 50% off if you came in two days in a row. The question here is: who's paying the full price, and who's getting ripped off/ a discount?
A similar thing happened when my dad and I were buying some asado (the traditional Argentinian style of grilled meat) a few months ago: one portion was worth, say, 1200 pesos, but half a portion was a whopping 1000. My dad ordered half a portion, ignored me saying that a full one was a better deal, and then felt ripped off when I reiterated (after picking up the meat) that he could have gotten twice as much for 20% more. Why?
Common sense dictates that half as much should be worth half. Let's do some math. Assume that the costs of meat, labor, etc add up to 800 and that the half portion costs half as much to make. With a profit margin at a lump sum of 400, the full portion costs 1200 but half costs 800. You can muck around wirh labor costs, fixed costs, etc, but i don't think it would make sense either way. So why do smaller things cost more?
Once you first notice this type of thing, it pops up everywhere. Why is a half liter bottle of Coca Cola worth much more than half of what a liter is worth? And why are Coca Cola bottle sizes so weird, anyways - half a liter, one and a half liters, 2.25 liters are the "normal" widely available sizes. Why do supermarkets do discounts if you buy more units? (buying just one is the same as paying more for each).
The key concept here is price discrimination: charging different prices for, generally speaking, the same product. The way to understand this is simple: consumers have preferences. Normally economists model these as functions, but to all purposes they're basically a number figure anyone would be willing to pay for a given thing. If people have a different willingness to pay for something, then you can charge different amounts for it. The difference between how much anyone is willing to pay and what they actually pay is called the consumer surplus: if you'd pay 20 dollars and get something for just 15, your surplus is 5. It can be positive, zero, or even negative (think someone paying for price gouged insulin). Based on how much you know about these different preferences, and how you learn about them, you have three different types of discrimination.
The first, and least realistic (or relevant) type is first degree price discrimination. The monopolist here knows the exact willingness to pay of every consumer, charges them exactly that price, and walks away with the entire surplus. The traditional example is a small town country doctor, who knows who's rich and who's poor, who's healthy and who's sick, etc, and can therefore charge then the right price. A more relvenat example is your therapist: because they know all about your finances and emotional state, they could charge you more or less for the same service. Note that if this turns you away from therapy, you might actually really benefit from it.
More realistically, you have second and third degree discrimination. In it, there are several kinds of consumers with different but homogeneous willingnesses to pay, called types. Say, type A with 15 and type B with 20. Under one price, you can only really capture the full surplus of one group, either A by charging 15 (and getting no profit from B) or B by charging 20 (and losing the A business). The difference here is really how you learn about consumer's preferences.
With third degree price discrimination, consumers themselves tell you what their type is - senior, student, or children's discounts are the classic case. Argentinian nightclubs frequently charge women less than men, and often let attractive women in for free while not letting unattractive ones enter (or, put another way, charge them a price equal to infinity). The first one is clearly price discrimination, the second one might just be regular discrimination through prices. That explains why the national park had different prices for students, national, and provincial residents: they might just not go at all if they had to pay the same as a foreigner. The foreigner was paying "the full price", equal to their willingness to pay, and everyone else was getting a free ride from them.
Second degree price discrimination is slightly different - consumers have to reveal their type through choice of a bundle (basically a package of price and quantity), which so far we have ignored. (Actually you can do it through a two-step tariff but it's functionally the same). This is why, for instance, soda comes in different sizes instead of them just letting you fill your own bottle with a custom amount, besides costs. It's also why the parks charge you less if you go in twice in a row, and why the full portion of asado was worth 1200 instead of 2000 - the people who consume more of the product are subsidized.
So anyways, that’s that. Once you learn about what price discrimination is, and what the different types are, you can't stop seeing it everywhere. Hope I didn't break your brains.