ECONOMICS ASSIGNMENT

TOPIC: PRICE DISCRIMINATION IN DISNEY

WORLD

NAME: Yashvi Chheda

COURSE: FYBAF
ROLL NO.: 13
 PRICE DISCRIMINATION IN DISNEY WORLD

Introduction:
Price discrimination is a selling strategy that charges customers different prices for the same
product or service based on what the seller thinks they can get the customer to agree to. In
pure price discrimination, the seller charges each customer the maximum price they will pay. In
more common forms of price discrimination, the seller places customers in groups based on
certain attributes and charges each group a different price.

Why is Disney World able to practice price discrimination?

Disney World is able to perform price discrimination because the company meets the two key
requirements for this pricing strategy to be feasible: having market power (only a firm that is at
least able to set the price for its goods, is able to set different prices for the same product) and
being able to prevent resale and arbitrage.

Some of the sources of market power of Disney World are product differentiation. There is
indeed a large segment of customers who have a particular preference for Disney World’s
products, in relation to the other amusement parks for instance, and are willing to pay a
premium for it, regulatory barriers such as copyrights, and major economies of scale (high-fixed
costs combined with low marginal costs).
Disney World practices second degree price discrimination and third degree price
discrimination.
Second degree price discrimination:

1. Quantities Discounts:

The firm gives its customers various pricing choices according to the quantity offered and allows
the customers to choose among them. In addition, this price discrimination strategy allows
customers to choose which segmentation they belong, contrary to the first and third type,
where the firm separates consumers by their preferences, age, location, among others. We will
focus on the Magic Kingdom since this park records the highest values of attendance (17.5
million guests a year) and revenues among all Disney parks.

The average ticket price decrease as the number of days increases. If we take the price of a
one-day ticket (peak period) and multiply it by ten, the price would be $1240. However, a ten-
day ticket only costs $440, which is $800 less than $1240. The reasoning behind this is that the
amount of utility/satisfaction that a visitor gets from an incremental day at Disney World
decreases as the duration of the visit increases. So, as their visit extends, they are not willing to
pay as much for the last days, as they are for the first day. The willingness to pay will be less
and less (law of diminishing marginal utility).

By selecting which price restriction package they want, families and individuals can maximize
their expected utility of attending this theme park. This choice again depends on people’s
elasticity of demand.

2. Two-Part Tariff:
Disney World charges a high entry fee (ticket price) and charges nothing for riding the roller-
coaster. However, they charge small amounts for taking pictures with some relevant characters
or to access special events.
 3. Seasonal Discrimination:
For 1-day tickets, Disney World has defined 3 different prices by dividing the calendar into 3
major categories, according to the size of demand and elasticity of demand of customers. They
are the “value”, “regular” and “peak” periods, that correspond respectively to periods with low,
medium and high demand, and periods where customers are extremely sensitive to prices,
relatively sensitive to prices and insensitive to prices.

The calendar for the months of May of 2017 until March of 2017 was gathered on the 23 rd of
May (see annex 3), and, in summary, the “peak” period corresponds mostly to summer, winter,
spring and fall breaks, as these are critical periods (children have no classes and adults have
vacations), and to some popular travel holidays like Thanksgiving and memorial Day. The
“regular” season corresponds mostly to weekends, namely weekends right before a holiday,
and some summertime weeks (when some schools have already started). “Value” season
corresponds to the remaining days, namely Mondays to Thursdays of the (non-regular, non-
peak) weeks.

A ticket for a “peak” day has the highest price, and the ticket for a “value” day the lowest. A
“value” ticket is priced $99 or above, a “regular” ticket is priced $107 or above, and lastly, a
“peak” period is priced $119 or above. The reasoning is straightforward: for the periods where
customers are less price sensitive, the firm is able to charge a higher price. To illustrate, in the
summertime (a “peak” period) customers have a relatively inelastic demand, because it is often
one of the few times of the year where people are free to vacate and visit the parks. Therefore,
they are often still willing to buy a ticket even if the price is higher.

With this type of discrimination (in 1-day tickets), Disney World takes advantage of the different
sensitivities to price in the different times of the year, charging a higher price when the demand
is higher, and vice-versa.

Third degree price discrimination:

1. Florida Residents Special Discount:

An example of a third degree price discrimination is the “Special Florida Resident” tickets and
passes. As most of the inhabitants of Florida have likely experienced the Disney World Park,
they do not have the same willingness to pay for a ticket as someone who never did – their
utility is lower. Additionally, Floridians are more price sensitive than the consumers who are
geographically more distant to the park, since they do not need to account for accommodation
or travelling expenses, so the price of the ticket becomes their only expenditure. On the other
hand, consumers who travel to get to the Disney World Park (non-residents) have a higher
number of expenditures regarding flights or hotel booking, so the ticket to the Park becomes a
small share of their total costs.

So, residents of Florida are charged lower prices (that do not change throughout the year), and
the non-residents higher prices. Additionally, this pricing strategy (lower price to Florida’s
residents) allows Disney to maintain a good image of the firm, passing the idea of a thoughtful
company that cares about the community.

2. Age Group Discrimination:

In Magic Kingdom Park, for 1-Day tickets, prices vary with date and include taxes: for children
with less than 3 years, the ticket is for free; for children with 3 to 9 years, the ticket costs
$118.00 in a “peak” day, $109.00 for a “regular” day and $101.00 for a “value” day; finally,
people with 10 or more years are charged $124.00 for a “peak” day, $115.00 for a “regular” day
and $107.00 for a “value” day. In conclusion, Disney World has defined that people younger
than 3 don’t pay at all and that the age group of 3 to 9 years pays a lower price than the people
with 10 or more years.
This can be explained by the fact that children possess a higher price elasticity demand than
adults. Parents are not willing to pay as much on a child’s ticket than on a ticket for themselves.
Additionally, since children are the first factor of attendance to the park, a lower price for them
is an incentive for people to bring them. This discrimination is used by this park-theme because
Disney World is able to segment the customers by age before the purchase of the ticket.

Benefit from the practice of price discrimination strategies:

Price discrimination is a strategy that benefits both Disney (the firm) and the park attendants
(the consumers). Disney is able to collect a bigger part of the consumer surplus for itself than it
would if it charged the same price to all its consumers. The ones who experience the park also
take advantage of this kind of pricing strategy, because they are able to adjust their willingness
to pay to the available prices.

These strategies are very helpful to Disney World as charging different prices to different age
groups of consumers and making tickets free for children below the age of 3 increases the visit
rate of families to the theme parks. Providing discounts to local residents movitates them to
revisit the theme park as they wouldn’t go at the prices Disney World charges for tourists.

These price discrimination strategies entice consumers to visit and revisit Disney World theme
parks and motivates otherwise uninterested consumer groups to do the same. These strategies
help generate more revenue, lower prices for some customers and maintain well-regulated
demand throughout the year.

References:

https://www.academia.edu/36315469/Price_Discrimination_on_Disney_World

https://mpk732t12016clustera.wordpress.com/2016/04/29/price-discrimination-disney-way/
----------X----------