Tuesday, 19 April 2011

Mickey Mouse economics

By Neil McCulloch

There can be few better examples of the globalisation of culture than the pervasive influence of Disney. If you have children, Disney is everywhere – on TV, in films, books and DVDs. And the pinnacle, if that is the right word, of Disney is Disneyland, which is where I spent the day last Tuesday. 

Disneyland, for those fortunate enough not to know, is a huge theme park (I went to the one outside Paris) consisting of a set of immaculately reconstructed make-believe lands (Fantasyland, Adventureland, Frontierland, you get the idea). It’s main feature is the bewildering array of rides that one can go on, ranging from the tame (twirling tea cups) to the truly hair raising (why did no one tell me about the 360 degree loop in the Indiana Jones and the Temple of Doom ride?). 

With the rides come queues – horrendous queues.

It says something about humankind’s need for thrills that we willingly queue for almost an hour for just three minutes of excitement. But, as an economist, I also found it fascinating because it says something very interesting about the clash between values and making money. How so?  Because queues mean scarcity and there is a well known solution in economics for scarcity – it is known as ‘price discrimination’. 

Imagine Disneyland were trying to make as much money as possible (which, given the amount of merchandising would seem a reasonable assumption). Then they would recognise that people have different willingness to wait: some people are impatient and would happily pay extra to jump the queue; others, on tighter budgets, would prefer a few minutes extra in the queue.

Consequently, the most economically ‘efficient’ solution (in the sense that it would both give consumers what they want and also maximise income for Disneyland) would be to allow people to pay different amounts for different lengths of wait. This would allow Disneyland to have a super-cheap ticket for those happy to wait for long periods, and a super-expensive ticket for those who want to get straight in on rides, and everything in between. (Rather bizarrely, I have proposed a policy for ameliorating financial crashes which draws on exactly this idea – see my Panic Tax Policy Brief).

Equity versus efficiency?

So the interesting question is – given that Disneyland do not appear to be averse to trying to extract as much money as possible from their customers – why do they not do this?  There are two possible answers. The first answer is a boring one – it might just be too complicated to organise since it would require extra staff adjudicating entry into different parts of the queue – in this view, ‘transaction costs’ prevent the application of the efficiency solution. 

But I suspect the answer is actually more interesting. I suspect the reason that Disneyland don’t do this is because it is wrong.

Most people would fundamentally object to the idea that richer people could buy themselves a better place in the queue. We may have different means, but, after you have bought your ticket for Disneyland, we are all the same and should be treated as such. To my mind, this says something important about the value that we place on equity, that, instinctively we place this above achieving more efficient solutions. It seems the economics of Mickey Mouse is not so Mickey Mouse after all.


Rachel Godfrey Wood said...

hey great blog! incidentally i can think of at least one occasion where an attraction (in this case a cable car ride to the top of a hill overlooking Quito in Ecuador) had more expensive tickets for people wanting to jump the queue. I remember one of those people complaining when they thought that some people had paid less still went ahead of them though...but we do have similar things which seem normal to us - like first class/business class seats in trains and planes. Is there any inherent reason why paying more for a better seat is fair, but paying more to jump a queue is not? Is it that more unequal societies (like Ecuador) have a higher tolerance of differentiation on things like queues?

John Humphrey said...

people, generally speaking, don't like to be shown clearly that money enables you to jump the queue.The queue is a statement of the principle of first-come, first-served. Adding a second principle into the mix looks unfair. Therefore, businesses will try to obtain the extra revenue from arranging this, but in a more opaque fashion. For example, you can enter a long queue outside the Uffizi, or buy a ticket at your hotel at a premium, but which gets you a different entrance without a queue.
Neil's blog rightly points to the question of fairness. Behavioural economics has produced some very interesting experiments to show people make choices that are not obviously utility maximising (or revenue maximising) to the individual in the short term.