Price discrimination in tourism... French tourist attractions edition

The latest development in pricing at French museums should be familiar to my ECONS101 students, or to regular readers of this blog. As reported by the New Zealand Herald back in January:

France is hiking prices for non-Europeans at the Louvre this week, provoking debate about so-called “dual pricing”.

From Wednesday local time, any adult visitor from outside the European Union, Iceland, Liechtenstein and Norway will have to pay €32 ($64) to enter the Louvre – a 45% increase – while the Palace of Versailles will up its prices by €3...

Other state-owned French tourist hotspots are also hiking their fees, including the Chambord Palace in the Loire region and the national opera house in Paris. 

This form of pricing is, of course, known as price discrimination - offering the same product (in this case, museum entry) to different consumers for different prices. Price discrimination works when the seller has consumers with heterogeneous demand for their product. That means that some consumers have more elastic demand for the product (and are more price sensitive), while other consumers have less elastic demand for the product (and are less price sensitive). The seller charges a higher price to the consumers who are less price sensitive.

Why do foreigners have less elastic demand for tourist attractions? As I noted in this post back in 2014, there are two reasons. First, consumers tend to have less elastic demand for goods with few close substitutes. There are few substitutes for visiting the Louvre (or other tourist attractions), making demand less elastic. Arguably, for foreign tourists there are fewer close substitutes to the Louvre. Locals can do all sorts of things with their time, but tourists tend to want to go to tourist attractions while on holiday. Second, the significance of price in the total cost of the good is lower for foreign tourists than for locals. Foreign tourists have usually also travelled a long way at great cost to get to France, so the cost of entry into the Louvre is pretty small in the overall cost of their holiday, making demand less elastic. For locals, the cost of the ticket to the Louvre is probably most of the total cost of attending, so a change in the ticket price would have a greater effect on whether they go (making demand more elastic).

The New Zealand Herald article focuses attention on the ethics of price discrimination, noting that:

Trade unions at the Louvre have denounced the policy as “shocking philosophically, socially and on a human level” and have called for strike action over the change, along with a raft of other complaints.

That criticism is not trivial, because museums are not just profit-maximising firms - they also have a public-access mission, so charging more can look inconsistent with their public access goal. However, it is important to recognise that price discrimination is not illegal or even necessarily immoral, and may provide greater support for the long-term goals of the museum.

Price discrimination is in fact relatively common at tourist attractions (see the links at the end of this post), especially in developing countries but also increasingly in developed countries like New Zealand. And:

Britain has long had a policy of offering universal free access to permanent collections at its national galleries and museums.

But the former director of the British Museum, Mark Jones, backed fee-paying in one of his last interviews in charge, telling the Sunday Times in 2024 that “it would make sense for us to charge overseas visitors for admission”.

Society should want museums to remain sustainable. However, funding purely by taxes doesn't ensure sustainability, which is one reason that museums charge entry fees in the first place. And since museums are charging an entry fee anyway, it is right to consider what is the 'best' entry fee. There is no reason why that entry fee needs to be the same for locals and foreigners. After all, locals likely already pay for the upkeep of the museum through their taxes, so having a lower price for locals (as many tourist attractions do) is in that sense a fairer option. Price discrimination therefore has fairness in its favour, in addition to being a way of increasing profits for the museum, increasing its financial sustainability.

Read more:

• Are tourism operators in NZ missing a trick?
• Price discrimination in tourism... India edition
• Price discrimination and the Great Walks
• Hamilton Gardens' entry fee for tourists as a form of price discrimination
• Te Papa Tongarewa embraces price discrimination, but other tourism operators are still missing the trick

This week in research #122

Here's what caught my eye in research over the past week:

• Prati and Senik (with ungated earlier version here) propose a rescaling of happiness data using retrospective and current life evaluations, and show using their rescaled data that, among other results, the happiness of Americans has substantially increased from the 1950s to the early 2000s
• Johannesen and Muchardt (open access) test whether female scholars in economics are held to higher standards than males in the US and Europe, and find no evidence that standards are higher for females across faculty appointments, network invitations, grant awards, and editor appointments
• Choi finds that adding a healthcare copayment of $1 in Korea reduces monthly outpatient visits by 10 percent, with effects concentrates in low-value care, such as the inappropriate use of antibiotics
• Ozsoy and Rodríguez-Planas (with ungated earlier version here) find that students who took advantage of a flexible grading policy at Queen's College (City University of New York) during the COVID-19 pandemic underperformed once the policy was no longer available, with a cumulative GPA 0.11 standard deviations lower in Spring 2021 than in Fall 2019 relative to the change in performance of students who never used the policy
• Alonso-Armesto, Cáceres-Delpiano, and Lekfuangfu (open access) find substantial gains in mathematics and science achievement, concentrated among male students and those from lower socioeconomic backgrounds when the minimum legal drinking age increases from 16 to 18 years
• Mitra (with ungated earlier version here) finds that more educated mayors in Italy boost public investment, especially in the education sector, without compromising the fiscal stability of the municipalities

Blame it on the rain (on open day), or campus tour weather and university choice

The University of Waikato Open Day is coming up next month. We'll have thousands of prospective students on campus for most of the day, learning about their study options, attending mini-lectures, talking to current staff and students, and collecting lots of free stuff that we give away. Many people question the value of these open days. Do they make a difference to students' choice of university? Undoubtedly, for some students at the margin they will make a difference. And from my experience, open days can affect some students' subject choice.

One thing that open days provide prospective students is a 'vibe' for their potential study location. This is where I might criticise open day, because it really is almost nothing at all like a 'normal' university day, so it doesn't give prospective students any idea what university is really like. The 'vibe' might also be affected by elements beyond the university's control, like the weather. How important is the weather? This recent NBER Working Paper by Olivia Feldman, Joshua Hyman, and Matthew McGann (all Amherst College), provides some idea. They look at the effect of weather on the day that a student undertakes a campus tour at an unnamed "institute of higher education" (IHE) on whether the student subsequently applies and/or enrols at that IHE, finding that weather affects applications but not enrolment. The campus tour is a more limited version of our open day:

Tours are typically given by current students and involve the guide walking the participants around campus for about an hour while sharing information about the institution, academics, student life, campus dormitories, academic buildings, dining halls, and sports and recreational facilities.

Feldman et al. use administrative data on all campus tours between summer 2016 and fall 2024, along with hourly weather data from The Weather Channel, and data on where each student subsequently enrolled from the National Student Clearinghouse. They report that overall:

28.8 percent of participants apply to the institution, and 2.2 percent ultimately enroll.

In their main analysis, Feldman et al. apply a simple OLS regression model, with application (or enrolment) at the focal IHE as the dependent variable, and weather variables (cloudy, rainy, and several temperature ranges to capture hot and cold days) as the explanatory variables of interest. They find that there is:

...a 1.7 percentage point (5.9%) lower application rate when the tour is cold, a 2.3 point (8.0%) lower rate when the tour is warmer, and a 2.9 point (10.1%) lower rate when the tour is hot. Further, cloudy tours reduce the application rate by 1.4 percentage points (4.9%), and tours with precipitation reduce it by 2.4 points (8.3%).

Those effects on applications are quite large in context. However, when Feldman et al. look at the effect on enrolment (rather than just application) they find statistically insignificant effects (albeit using several different composite variables for 'bad weather' as the explanatory variable of interest, rather than individual weather variables as in the earlier analysis).

My takeaway from this paper is that students’ choice of university is fairly resilient to the effects of weather on the day of their campus tour. While poor weather may reduce the chances that a student applies to a particular university, it doesn’t seem to have much effect on whether they ultimately enrol there. Of course, this is evidence from a single US institution, and may not easily translate to the New Zealand context. Still, extending these results to open days suggests that while the ‘vibe’ on the day might affect whether a student applies to the University of Waikato, and the weather contributes to that vibe, it probably isn’t an effect that we should worry too much about.

University enrolments fluctuate from year to year, and there are lots of variables that affect them. One thing this study suggests is that, while rain on open day might dampen spirits, it probably isn't the major cause of low enrolments. So, if the numbers are down, we needn’t blame it on the rain (on open day).

[HT: Marginal Revolution]

The short-run impact of the Russian invasion of Ukraine on the euro-ruble exchange rate

When Russia invaded Ukraine in February 2022, one of the immediate consequences was a reduction in financial flows between Russia and the rest of the world due to international sanctions and Russia's own emergency capital controls (see here). Among other effects, this led to a decrease in the demand for euros and other foreign currencies (from Russians) and a related increase in the demand for rubles. Those changes should be observable in the data on the euro-ruble exchange rate. We should expect to see an appreciation of the ruble relative to other currencies.

Indeed, that is what this recent article by Sagiru Mati (Near East University) and co-authors, published in the Journal of Policy Modeling (sorry, I don't see an ungated version online), reports. They use a time series econometric model and data on the euro-ruble exchange rate from 1 January 2020 to 11 October 2022, testing for a change in the exchange rate after 24 February 2022 (when Russia invaded Ukraine).

Mati et al. don't find a step change in the level of the euro-ruble exchange rate. However, they do find a change in the rate of appreciation/depreciation in the exchange rate. Before the conflict, the ruble was losing value (depreciating) at an average rate of 0.04 percent per day. However, after the conflict, the ruble appreciated at an average rate of 0.21 percent per day (this averages out an initial steep decline in the exchange rate, followed by a rapid depreciation. This is shown in Figure 3(a) from the paper (although note that this graph shows the exchange rate in terms of the number of rubles per euro, so an appreciation of the ruble is a decline in the graph, while a depreciation is the reverse):

In other words, as expected the ruble began appreciating after the conflict, presumably due to an increase in the demand for rubles. The consequences of this appreciation include that Russian exports become more expensive for foreigners to buy (if priced in rubles, because more euros would be required for the same purchase) or less profitable for Russian exporters (if priced in euros, because the same quantity of euros would convert to fewer rubles). On the other hand, imports become less expensive for Russian consumers (if priced in euros, because fewer rubles would be required for the same purchase) or more profitable for exporters to Russia (if priced in rubles, because the same quantity of rubles now converts to more euros). Of course, sanctions on Russia extended to trade flows, so those potential changes were mostly moot.

International markets, including exchange rate markets, are frequently shifted by geopolitical shocks. Here is a case where the shock (the Russian invasion of Ukraine) had a largely predictable effect on the exchange rate.