I'd been meaning to write about this for a while, not because it's particularly fascinating but because I thought it was an interesting observation about economics and price discrimination in one of the simplest of situations.
I have a fairly crappy drive to my summer internship. It's not the drive as much as the distance, about 13miles or 30minutes, depending on traffic. Considering my car gets about 13.5-15mpg, it's financially crappy as well as just plain long. I know, some people would kill for that kind of drive, but I'm a poor college student at an internship. My commute cuts across the southeastern suburbs of Rochester, including passing through a pretty exclusive golf club, Locust Hill. About three weeks ago, they hosted the LPGA tournament. The club is on both sides of the street, and their parking lot, while a good size, is clearly too small for a major tournament.
Brief digression: I hate other drivers, with a passion. The entire time the LPGA tour was in Rochester, my commute rose to about 45minutes. I don't understand why, because while there were police there, they were not really interfering with traffic. I suppose the presence of cones, police, and people on the street means we have to slow from 45-50mph to 20. Were they slowing to watch or because they were nervous of running someone over?
As all good Americans would do, all homeowners near the club had posted giant signs offering parking. I wondered how much effort, if any, these people put into maitenance of their lawn, because the entire two weeks seemed to be dedicated to packing as many Suburbans and Cadillacs per blade of grass as humanly possible. I was looking at the prices and you could read nearly the entire tournament from looking at the lawn. I could tell which days had the more exciting holes, I could see that golf watchers (not surprisingly) are predominantly more "senior" upperclass white men, some who dragged their wives along. Cadillacs, Buicks and Oldsmobiles were everywhere.
What interested me most was to see, based on prices, how much these people were willing to pay to avoid walking a distance. Parking in houses stretched about 1/2 a mile in both directions, and generally they were charging $25 for parking near the course, some offered gimmicks like a free bottle of water with parking. Most of these places were packed, it seemed that $25-30 was around the equilibrium price. One house who offered parking for $35 a day was 1/2 empty. Not surprisingly, the next day they had dropped their price by $10. Once you passed about 500 feet, the prices dropped dramatically. A quarter mile from the entrance, parking cost you $5, and there was plenty available. These people had enough disposable income that in general, they were willing to pay $20-30 to avoid walking 1,000 feet. Then again, when you're blowing $100 or so to watch a golf tournament, it probably doesn't matter to you.
I would have loved to see a similar event, ceteris paribus, in which the customers are predominantly younger. Maybe an ultimate frisbee tournament. I would assume prices would be lower with a smaller deviation, maybe $10 for parking closest dropping to $5. The question is, would the drop in price be due to price discrimination or that these people would be willing to walk farther for a deal? Probably both.
2 comments:
I don't think you mean price discrimination. You probably mean marginal willingness to pay, which is clearly much lower for young people. Price discrimination takes an integrated market and refers to the practice of charging different prices to different groups for the same item. Like discounts for senior citizens. Parking spots 500 feet away aren't the same item as parking spots right up close.
I think the more interesting phenomonon is the market making up for a lack of parking. That golf course's parking lot is mostly empty all the time. I wonder if there isn't a way to use an empty parking lot to some productive use when it isn't covered with cars. Or perhaps make some agreement with neighbors that you'll build a smaller parking lot (one that you use up most of the time) and they can gouge your customers on busy days. More efficient resource allocation?
I think you're right but that is a form of price discrimination in the 1st and 3rd degree, assuming senior citizens also show up to the frisbee event?
Re: smaller parking lot, perhaps, but it's probably easier for the golf club to ignore the problem and just let the market fix it separately. I think the opportunity cost of that parking lot is pretty low, unless they were to sell the property which is probably not feasible. Particularly considering these kind of events are generally a once a year phenomenon.
The two things that struck me most about it was- #1- These homeowners nailed the equilibrium price, or close to it, after a day or two. #2- Senior citizens are willing to pay $10-20 more to avoid walking 1000 feet. Someone should set up a valet service there.
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