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.

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