Friday, June 19, 2015

Theme Park Economics - Disney and Universal Orlando

I just returned from Orlando after a trip with my family.  We visited both Universal Orlando theme parks and Disney World.  The parks are pretty fascinating for an economist to visit as a couple economic principles are demonstrated quite vividly. 

First, you see the monopoly power these parks have when selling concessions inside the parks based on the prices they charge.  Meals that would cost $5.00 or less outside a park are considerably more.  For example - how much do you think a fast food restaurant would charge for a hot dog and fries with no drink?  Naturally, it would depend on the place, but it's tough to imagine paying more than $4.00 or $5.00.  At Disney you pay $7.49 for the same meal.

This monopoly power holds when purchasing drinks as well.  A 20 ounce soda that costs about $1.50 at a gas station or McDonalds costs about $3 in either Disney or Universal Studios.

Second, you see great examples of price discrimination.  Disney does this in several ways.  First, look at the pricing schemes for tickets based on the number of days you're visiting ....

The first three days in the park each cost about $100 - after that it drops quickly.  (Note: these admissions to the park must be used within a 14-day period)

Disney also charges a bit more than other local hotels for those who want to stay on Disney property.  The benefits include more of the "Disney experience", quicker access to the parks, earlier access to ride-reservations, along with more convenient busing access across the properties.  Disney offers more immersion into the "Disney Magic" for those willing to pay more.

Within the Disney properties, you also see dramatic differences in pricing schemes for different hotels, as you can see from this image:

(Note - this includes tickets for a family of 4 - but those costs remain the same regardless of the property.)  The

Universal Studios in Orlando price discriminates as well, but they take it a step further with their Universal Express program.

This option isn't cheap for a family, however.  There are two ways to obtain these passes.  You can purchase them outright - for our family of five this would have cost over $300 for a day (after taxes).  
Instead we chose to spend one night at a Universal hotel to obtain these passes.  The hotel was walking distance to the parks, which was nice, but it was literally three times as expensive as a comparable room that was 1.5 miles away.  That said, our hotel reservation meant we received Universal Express passes for two days - the day we arrived and the day we departed.  While expensive, the total hotel price was less than if we'd paid for one day of express passes separately.  They also allow early park access.

We found this incredibly valuable!  Having the express pass for two days, we saved several hours of time we would have spent in line, allowing us to enjoy the parks far more.  When you have a limited amount of vacation time, an hour of vacation time is far more valuable than an hour of non-vacation time, and we found that Universal Express was well-worth the extra money to stay in the on-site hotel.  

The Universal Express option is an excellent way for Universal to price discriminate.  Those whose demand is lower can simply buy the regular admission tickets.  But through express passes, Universal offers a way to extract more money from those who have a higher demand.

We enjoyed our vacation!  But it is also interesting for me to see the economics at play in the parks.

Quoted in NPR on fracking story

Link here

Rousu was quick to point out that he disagrees with Wolf on many issues. For example, he’s not convinced the state needs a new tax on gas production.
“I think they’re doing a lot of things wrong.” Rousu says of the Wolf administration. “But this change seems pretty reasonable to me. The previous jobs number did seem high. But 90,000 is an enormous number. It’s 1.5 percent of workers in the state.”

Wednesday, June 10, 2015

Proper benefit-cost analysis when taking death penalty positions

In a sensational “Shawshank Redemption”-style prison break, a pair of cunning convicted murderers used power tools and tunnels to escape an upstate maximum-security penitentiary near the Canadian border.
A massive manhunt was underway Saturday after killers Richard Matt, 48, and David Sweat, 34, were discovered missing from the Clinton Correctional Facility in Dannemora, about 25 miles from Canada, officials said.
The inmates made their extraordinary dash to freedom after faking out guards with makeshift dummies made out of hooded sweatshirts to appear as if they were still sleeping inside their cells. And once officials discovered they were gone, they found a note from convicts telling them to "Have a nice day!"

When people argue about whether society should have a death penalty, sometimes the argument is strictly based on moral arguments.  But when it is not, sometimes the costs of the death penalty are brought up, and usually by those opposed to the death penalty as the costs of imposing the death penalty are high.

I don't buy into this argument against the death penalty, however, as the reason it is high is precisely because death penalty opponents use (and abuse?) the legal process to drag out appeals for decades. Regardless, some will use this argument to say that life-in-prison sentences should be used instead of going for the death penalty.

However, one thing that is rarely considered in these arguments is that when someone isn't executed, there is a non-trivial chance they'll murder again.  This can happen within the prison or, like the story above, when prisoners escape.

A true benefit cost analysis should factor in that "life in prison" for a convict really means "will probably spend life in prison".