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

Will New Zealand finally deal with excess demand for access to tourist destinations?

New Zealand has long had a problem with excess demand for access to tourist destinations. I've written about this before, using the Great Walks as an example (see here, and here). Because the price for access to these tourist destinations is too low, the demand for access far exceeds the supply. The consequence is a much-degraded experience for everyone.

The solution, as I have noted before, is to let the price increase. Charge more for access to the Great Walks, and other tourist destinations. And, finally, that may be about to happen. As the New Zealand Herald reported last week:

A $20 access fee for Cathedral Cove, the Tongariro Alpine Crossing, Franz Josef Glacier, Milford Sound, and Aoraki Mount Cook National Park?

The Government is floating the idea of charging visitors – including New Zealanders – as part of two discussion documents, released today, which Conservation Minister Tama Potaka calls the biggest potential changes in conservation in more than three decades...

Charging $20 per New Zealander and $30 per non-New Zealander for accessing those places would bring in an estimated $71 million a year. Charging only international visitors would yield about half that.

Charging for access to these tourist destinations would go some way towards dealing with the excess demand. I'm totally ok with the differential price for New Zealanders and overseas travellers as well (which is something I have noted before, again in the context of the Great Walks). My main concern though is that the price of $20 for New Zealanders and $30 for non-New Zealanders may be too low. However, others have a different view:

But it has triggered a strong reaction from Forest and Bird, which said: “Connection to te Taiao (nature) is a fundamental part of being a New Zealander. All New Zealanders should be guaranteed the ability to connect with our natural environment regardless of how much money they earn.”

How easily can New Zealanders connect with their natural environment when it is thronged with tourists all visiting for free? Charging a price for access limits the numbers of tourists (including other New Zealanders), and makes it more likely, not less likely, that New Zealanders can get genuine access to these places. There is a meaningful difference between accessing a tourist location when there are hundreds of other tourists swarming all over it, and when few people are around and a peaceful engagement with nature is possible.

Quite aside from this being a way for the government to fund the Department of Conservation's operational costs, this proposal to charge a fee for access to these tourist locations is a sensible way to manage demand. Maybe we will finally have a working solution to the excess demand problem in these places.

Read more:

• The Great Walks may be free, but they are not free
• Reducing excess demand at the Great Barrier Reef
• Excess demand for the Great Walks continues

Tourist levies and tourist spending

The New Zealand Herald reported earlier this month:

An international tourism levy charged to visitors to New Zealand will increase to $100 – a jump of almost 200% – in a decision the Government believes will help boost economic growth and support conservation.

But it has some in the sector concerned the increase will be a barrier to visitors coming to New Zealand.

The International Visitor Conservation and Tourism Levy (IVL) is currently set at $35 and is charged to most tourists, people on working holidays, some students and some workers coming to New Zealand.

The IVL acts as a form of two-part pricing (which you can read about here). A firm uses two-part pricing when it splits the price into two parts: (1) an up-front fee for the right to purchase; and (2) a price per unit. If the consumer wants to buy any of the product, they must first pay the up-front fee. In the case of the IVL, it isn't a firm that's using two-part pricing, it is New Zealand as a whole. Tourists to New Zealand, if they want to buy any tourism experiences in New Zealand, must first pay the IVL.

The effect of the IVL on tourist spending is shown in the consumer choice model diagram below. In this case, the consumer is a tourist. They can spend their income (M) on either of two goods: NZ goods (as a tourist) with price Px, or overseas goods with price Py. The tourist's budget constraint with no IVL is the black line. The highest indifference curve that they can reach is I0, and they will buy the bundle of goods E0, which includes X0 NZ goods, and Y0 overseas goods. Now consider the impact of the IVL. The IVL takes income away from the tourist, but they don't receive any NZ goods in exchange for it (they just receive the right to buy NZ goods, as they can enter the country). That shifts the tourist's budget constraint inwards to the blue line (note that the end points on the budget constraint now have income (M-F), where F is the amount of the IVL). The tourist cannot buy the bundle of goods E0 anymore, as it is outside their budget constraint (it is outside the feasible set). The highest indifference curve that they can reach is now I1, and they will buy the bundle of goods E1, which includes X1 NZ goods, and Y1 overseas goods.

Now consider what this means for the government and for tourism operators in New Zealand. Overall, the tourist is spending more money in New Zealand now. We know this because they are buying fewer overseas goods (Y1 instead of Y0), and since they are still spending all of their income, they must be spending less on overseas goods (because the price of overseas goods is still Py), and more in New Zealand (made up of the IVL and what the tourist spends on NZ goods). The government might see that as a good thing.

On the other hand, the tourist is now buying fewer NZ goods (X1 instead of X0). That clearly isn't a good thing for New Zealand tourism operators, because tourists are spending less on NZ goods. It is little wonder that tourism operators are not happy about the IVL increasing. [*]

It gets worse for NZ tourism operators though, when we consider heterogeneous tourists. The diagram below shows two different consumers - a high-demand tourist (who spends a lot on NZ goods) shown in blue, and a low-demand tourist (who spends very little on NZ goods) shown in red. After the IVL is introduced, the high-demand tourist moves from buying bundle EH0 to bundle EH1. This means that they buy fewer NZ goods (XH1 instead of XH0), but spend more in NZ in total (just like the previous diagram, because they are buying less overseas goods - YH1 instead of YH0). However, the low-demand tourist's best affordable choice after the IVL is introduced is to stop buying any NZ goods at all, and not pay the IVL at all. They would consume the bundle EL1, spending all of their income on overseas goods (and buying no NZ goods at all instead of XL0).

Tourism operators might console themselves that while there will be fewer tourists, the remaining tourists are those that buy a lot of NZ goods. However, high-demand tourists could even end up spending less in NZ overall, as shown in the diagram below. In this diagram, I only show the high-demand tourists (for simplicity). Notice that in this case, once the IVL is introduced the high-demand consumers move from buying bundle EH0 to buying bundle EH1, and they end up buying less NZ goods (XH1 instead of XH0), but more overseas goods (YH1 instead of YH1). Since they are buying more overseas goods, they must be spending more on overseas goods (because the price of overseas goods is still Py), and therefore spending less in NZ overall (even when you add the IVL plus their spending on NZ goods).

Which of these scenarios will play out? Will consumers end up spending more overall (combining the IVL and spending on NZ goods)? Low-demand tourists will stop visiting, but how many will do so? Will high-demand tourists spend more overall, or less? These are all relevant questions that it would be worthwhile to answer. And the New Zealand tourism industry really needs some answers, because it will be really consequential for their revenue and profits.

*****

[*] Note that the diagram doesn't show the effect of increasing the IVL. However, comparing IVL with no-IVL is qualitatively the same as comparing smaller-IVL with larger-IVL.

Te Papa Tongarewa embraces price discrimination, but other tourism operators are still missing the trick

Ten years ago, I asked whether tourism operators in New Zealand were missing a trick - why weren't they charging higher prices to tourists and lower prices to locals? In other words, why weren't these tourism operators employing price discrimination?

It may have taken ten years, but finally tourism operators are starting to see the light. As I noted last year, Hamilton Gardens' new fee structure is a form of price discrimination. Now, the national museum Te Papa Tongarewa is going to start charging a fee to foreign tourists (while remaining free for New Zealanders). As the New Zealand Herald reported last month:

Te Papa has announced it will start charging international visitors a $35 entry fee, citing the increased cost of energy, insurance and staffing.

The charge will apply from September 17 to people aged 16 and older. The national museum in Wellington will remain free for Kiwis.

Te Papa needs to raise $30 million annually to stay afloat, on top of the $44m it receives from the Government.

It’s hoped the new charge will raise several million dollars towards the museum’s portion which is currently met through existing partnerships, philanthropy donations, and commercial activities – as a conference venue - and from its cafes, retail stores and carpark.

Price discrimination occurs when a firm charges different prices to different customers for the same good or service, and where the price difference doesn't arise from a difference in costs. It costs Te Papa the same to provide the service to a New Zealander and to a foreign tourist. The difference in price (free vs. $35) is therefore price discrimination.

There are three conditions that must hold in order for price discrimination to be effective:

1. There must be different groups of customers (a group could be made up of one individual) who have different price elasticities of demand (different sensitivity to price changes);
2. The firm must be able to deduce which customers belong to which groups (so that they get charged the correct price); and
3. There must be no transfers between the groups (since you don't want the low-price group re-selling to the high-price group).

Those conditions are generally met in the case of tourist attractions such as Te Papa Tongarewa. Foreign tourists have low sensitivity to price (low price elasticity of demand) for two reasons. First, for a foreign tourist, there few substitutes to visiting Te Papa Tongarewa. In contrast, locals have plenty of other activities they can do rather than visiting the tourist attraction (there are many substitutes) Second, foreign tourists have usually also travelled a long way at great cost to get to New Zealand, so the cost of entry into Te Papa Tongarewa is pretty small in the overall cost of their holiday. For a local, any entry fee for Te Papa Tongarewa would entail a significant increase in the total cost of a visit (since the local doesn't have a high travel cost to get there, compared with a foreign tourist).

For both of those reasons, foreign tourists are relatively insensitive to changes in price compared with locals (foreign tourists have less elastic demand for visiting Te Papa Tongarewa). So, raising the price of entry isn't going to keep foreign tourists away in great numbers. However, raising the price for locals would have a much greater impact on the number of visits. Therefore, keeping the price low for locals, while charging a higher price for foreign tourists, is likely to increase profits for Te Papa Tongarewa.

All of this applies to other tourist operators as well. So, I remain surprised that there isn't a price differential for visits to Hobbiton, Waitomo Caves, or Whakarewarewa (to take just three relatively local examples). Tourist operators could even use price discrimination to paint themselves as friendly to locals. Who would argue against a 'large discount' for New Zealanders to visit iconic tourist attractions? They support the local community! Other than not using that framing, Te Papa Tongarewa has made the right choice. Other tourist operators are still missing this trick.

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

Excess demand for the Great Walks continues

In an opinion piece in the New Zealand Herald today, Thomas Bywater wrote:

The annual “bun fight” for bunks on the Milford and Routeburn tracks has become something of a tradition. Thousands of hopefuls log-in on opening day to try and book one of the 120 bunks on the “finest walks” in the world. Since moving to the online booking system, it’s become a bit of a lottery...

Many put the blame squarely on DoC for ruining their tramping holiday. Particularly international walkers, who said they had stayed up into the small hours of the morning to try and secure a place.

Bywater's solution to the problem is to create more Great Walks:

The only way to increase the number of bunks on the Great Walk network is to increase the number of Great Walks.

It’s a solution that the Department has only recently reached, with the addition of the Paparoa in 2019. As the fourth most well-subscribed trail on the network the West Coast trail has been a huge success.

That is only one way, not the only way, to improve things. Another is to recognise that, when there are more people wanting to buy a good or service than there is capacity to provide it, that means that there is excess demand for the good or service. Excess demand arises when the price is below the equilibrium price (the price that would equate the quantity demanded and quantity supplied of the good or service). This situation is shown in the diagram below. At the current market price for the Great Walks of P0, the quantity of huts demanded is QD, while the quantity of huts supplied (available) is QS. Since QD is greater than QS, there is excess demand (a shortage).

How do you get rid of excess demand? You allow the price to increase. If the price was P1 instead of P0, then both the quantity of huts demanded and the quantity of huts supplied would be Q1. There would be no more excess demand. Every tramper who was willing to pay P1 for a hut would get one. This is a point that I have made before (in relation to the free pricing of the Great Walks, rather than the price of huts). There are no good options for managing excess demand - either the price needs to increase, or some people are going to miss out.

Building new Great Walks is a great idea in its own right. However, it will only impact demand for the Routeburn or Milford Tracks to the extent that the new Great Walk is a substitute. That the Paparoa Track quickly because the 'fourth most well-subscribed trail' and yet we still have serious excess demand for other Great Walks doesn't provide a strong endorsement of new tracks as a solution. Instead, it is more likely that the addition of new tracks simply adds new demand to the system as well as new supply.

On the plus side, I was happy to see this bit from Bywater's article:

For the first time since the pandemic, international visitors were able to vie for a place, albeit at a higher rate than domestic visitors. From those that were able to book a place on the Milford Track, last week, 35 per cent were from overseas.

Finally, we have price discrimination that favours domestic tourists over international tourists (as I have argued for before - see here and here). Now, we just need the prices (for both domestic and international trampers) to rise some more.

Read more:

• The Great Walks may be free, but they are not free
• Price discrimination and the Great Walks

Hamilton Gardens' entry fee for tourists as a form of price discrimination

I missed this story when it was first reported, but Hamilton Gardens has made the decision to introduce a $10 entry fee once their new entry precinct opens at the end of the year. However, entry for Hamilton residents will remain free. As Stuff reported:

The days of free entry to Hamilton Gardens are numbered for visitors from out of town as work begins on a new precinct at the flagship attraction.

Tourists will pay $10 for entry to the themed gardens when the entry precinct is complete, possibly by the end of the year, while Hamilton residents and children under 16 will get in for free.

Work is set to start next month on the area, which is also intended to better open up the Gardens for visitors, making it easier to see what is on offer.

This is a great idea, and backed by solid economics. I've made the point before that, if tourist operators are trying to maximise profits, then tourists should be paying more for tourist activities than locals (see here, and here, and here). To see why, let's look at the example of Hamilton Gardens. As the Stuff article notes:

Hamilton & Waikato Tourism chief executive Nicola Greenwell said the Gardens are one of the region’s top offerings.

“They're incredibly important to our visitor offering, they are one of our hero products. So they do attract a large number of people to our city and to our region.”

She thinks visitors will take the $10 fee in their stride. “I think that the offering that the Hamilton Gardens has is world-class, and it is well worth an entry fee.”

Tourists will take the $10 fee in their stride, but not just because of the world-class nature of the gardens. We'll get to that a bit later. First, some theory.

Price discrimination occurs when a firm sells the same product to different customers for different prices, and where the difference in price doesn't arise from a difference in costs. In this case, access to Hamilton Gardens will be free for Hamilton residents, but cost $10 for tourists. That difference in price does not result from a difference in costs, because it costs Hamilton Gardens the same to host a visitor regardless of where the visitor is from.

For price discrimination to work, three conditions have to be met:

1. Different groups of customers (a group could be made up of one individual) who have different price elasticities of demand (different sensitivity to price changes);
2. The seller needs to be able to deduce which customers belong to which groups (so that they get charged the correct price); and
3. No transfers between the groups of customers (since the seller doesn't want the low-price group re-selling to the high-price group).

In the case of Hamilton Gardens, there are two groups of visitors (locals and tourists). Why does the price elasticity of demand differ between these two groups? Tourists have lower sensitivity to price (low price elasticity of demand) for a couple of reasons. First, for visitors there are few substitutes for visiting Hamilton Gardens (or other tourist attractions). Locals have lots of alternative activities (like staying at home watching Netflix). When there are fewer substitutes, the price elasticity of demand is lower. Second, tourists have usually also travelled further than locals, at higher cost, in order to get to Hamilton in the first place. So, the cost of entry into Hamilton Gardens is pretty small in the overall cost of their holiday. Whereas for locals, the cost of entry into Hamilton Gardens (if there was an entry fee) is essentially the entire cost of their visit. When the price is a smaller component of the total cost (as it is for tourists visiting Hamilton Gardens), the price elasticity of demand is lower. For both of these, tourists will be relatively insensitive to price compared with locals, and raising the price of entry for tourists isn't going to keep them away in great numbers.

That covers the first condition for price discrimination. For the second condition, Hamilton Gardens needs to be able to tell who the Hamilton residents are (because they get free entry) and who the tourists are. And for the third condition, Hamilton Gardens needs to ensure that Hamilton residents can't 'buy' free tickets, and then give them away to tourists (as that would defeat the entire purpose of price discrimination). Let's assume that Hamilton Gardens has a good way of doing these things (and we'll come back to that later).

Since those conditions are met, Hamilton Gardens can price discriminate. This is shown in the diagrams below. Both diagrams show a firm with market power (Hamilton Gardens), and each diagram corresponds to one of the sub-markets. The sub-market on the left represents the locals, who have more elastic demand - notice that the demand curve D1 is relatively flat (which means that a change in price will have a big effect on the quantity that these consumers demand). The sub-market on the right represents the tourists, who have less elastic demand - notice that the demand curve D2 is relatively steep (which means that the same change in price would have a smaller effect on the quantity that these consumers demand, than it would for the locals). The marginal cost (MC) is the same in both sub-markets - as noted earlier, it doesn't cost Hamilton Gardens any more to provide entry to a local than it does for a tourist. [*]

Hamilton Gardens will maximise profits by selling the quantity where marginal revenue (MR) is equal to marginal cost (MC) - this is the standard short-run profit-maximising condition. In the tourists sub-market, the profit-maximising quantity occurs where MR2=MC, which is Q2. In order to sell that quantity in the tourists sub-market, Hamilton Gardens should set the price equal to P2. The problem with that high price P2 is that in the locals sub-market, no consumers would be willing to visit Hamilton Gardens at all. Hamilton Gardens can increase profits if it charges a different price in the locals sub-market, from the price it charges in the tourists sub-market. In the locals sub-market, the profit-maximising quantity occurs where MR1=MC, which is Q1. To sell that quantity in the locals sub-market, Hamilton Gardens should set the price equal to P1. 

So, profit maximising across both of these sub-markets would require Hamilton Gardens to sell to the locals sub-market at a low price (P1), which may be equal to zero, while at the same time selling the same entry to the tourists sub-market at a high price (P2).

Now, there are some problems with this approach. Hamilton Gardens needs to be able to tell Hamilton residents apart from tourists. There are limited practical ways to achieve this. Perhaps Hamilton City Council issues an ID card to every resident? That would be effective, but expensive. So, perhaps Hamilton Gardens simply asks residents to bring proof of residency with them to get free entry. That could be a rates bill, or an electricity bill, or similar, with their residential address on it. Hamilton Gardens could, in theory, then match the name on the bill with some other form of ID, to make sure that the person wanting free entry is the same person named on the proof of address. I doubt they would do this, because it will take a lot of time and effort, and because sometimes you live at an address, but the bills are not in your name.

So, it's likely that all that will be required is a utility or rates bill with a Hamilton address on it, to get free entry to Hamilton Gardens. That will mean that this attempt at price discrimination doesn't strictly meet the second condition for price discrimination - Hamilton Gardens won't effectively know who is a resident, because any Hamilton resident can give a proof of address to a tourist, which would allow the tourist free entry to Hamilton Gardens. None of that means that price discrimination will fail entirely here. Movie theatres don't check ID before allowing entry, and they seem to get away with price discrimination just fine [**].

*****

[*] Notice that we are drawing a constant-cost firm here (so marginal cost is equal to average cost, and all units cost the same to produce and sell). That makes our explanations a little easier than the case where marginal cost is increasing.

[**] As far as I know, no student has ever taken up the business opportunity I point out every year, to buy tickets for people who would otherwise pay general admission at movie theatres, and pocket (some of) the difference in prices.

Read more:

• Are tourism operators in NZ missing a trick?
• Price discrimination in tourism... India edition
• Price discrimination and the Great Walks

'Snap-back', 'gone forever', and the economic impact of the coronavirus pandemic

Ordinarily, I don't post on macroeconomic topics. However, this blog post by Bruce Wydick was so interesting, I couldn't resist following up:

My main contribution here is to categorize different types of goods and services in ways that will help us better understand the economic situation we are in.  I will do it across two dimensions.  First is the distinction between purchases of what I’ll call “Snap-Back” goods and services and those that are “Gone Forever.”  In the Snap-Back category are things that we couldn’t buy during the heaviest COVID lock-down period, but these purchases were simply delayed.  There is good reason to think that as the economy begins to open up, purchases of these items might even be higher than normal due to pent-up demand.  Even during COVID, things like household appliances break or need fixing, and because over the long run purchases tend to even out, buying less now means buying more later.

“Gone Forever” goods and services, in contrast, are just like the term suggests: gone forever.  Like me, you may have foregone several haircuts during shelter-in-place because you didn’t want to get (or give) coronavirus to your barber.  But when it becomes safe to go back to the barber chair, you’ll still only get one haircut.  The rest of your haircuts disappeared into the economic ether; they were (mutually beneficial) transactions that COVID—what we might call the “invisible anti-hand”—prevented from happening. 

The second distinction is more standard and will be familiar to anyone who has studied introductory economics.  These are the differences between goods with low versus high income elasticity.  To those untutored in navigating the dense forests of economic jargon, income elasticity measures the percentage increase in purchases of a good when incomes go up by 1%. It measures how sensitive purchases of different items are to changes in income. 

Wydick's categorisation leads to four different types of goods and services, as shown in his diagram reproduced here:

 

The key point about this categorisation is to identify what sectors of the economy are likely to be hurt most by the coronavirus pandemic lockdowns and the associated recession. The lockdown hurts the "gone forever" goods and services, because the "snap-back" goods and services receive catch-up spending after the lockdown is released, while "gone forever" goods and services don't. The associated recession and high unemployment will lower incomes, so those goods and services where purchases are more sensitive to changes in income (high income elasticity), will be worst affected longer term.

So, when goods and services are both "gone forever" and have a high income elasticity, we can expect the impact of the coronavirus pandemic to be most severe. Wydick identifies air travel, tourism, sporting events, hospitality, and transport (but not public transport). Everything else either snaps back and experiences some catch-up spending, or isn't as affected by lower incomes.

Mostly, that suggests that a lot of the economy will survive fairly intact. However, that potentially misses the key point. Tourism and hospitality is going to be crushed, and continue to be in severe trouble for a long time. That's potentially a problem for a country like New Zealand, where the economy is (maybe overly) dependent on tourism and hospitality (tourism alone, not including hospitality, generates nearly 6 percent of GDP according to Statistics NZ's Tourism Satellite Account). It is also a problem because it is a sector with relatively high employment density (the Tourism Satellite Account shows about 8.4 percent of total employment is in tourism, again not including hospitality).

That means New Zealand faces a big and lasting hit to GDP, and (perhaps more importantly) a big and lasting hit to employment. Trying to prop up those sectors (like giving millions of dollars to bungy operators) may be an overly expensive way of retaining employment. Instead, perhaps using those millions to promote re-training and up-skilling of displaced workers might be money better spent. On the other hand though, keeping an existing business at a minimum viable level and ready to ramp back up when conditions improve is potentially less costly to the economy than closing the business down, losing the specific human (and other) capital, and then setting up a new similar business later.

What is best here probably depends on what you believe about the longevity of this crisis. The government's approach suggests that they think the economy will bounce back quickly. I would have erred in the other direction, taking this as an opportunity to up-skill the workforce. Of course, given that I work in the education sector, you'll just have to accept that I may have some bias here.

[HT: Marginal Revolution for the Wydick post, and Michael Doyle on the Waikato Economics Discussion Group for the bungy subsidy article]

Price discrimination and the Great Walks

In today's New Zealand Herald, Brian Rudman argued against charging different prices to tourists and locals for access to New Zealand's "Great Walks":

Last weekend, Green MP and Conservation Minister Eugenie Sage, followed through with the previous National Government's pledge to up fees to cover costs. But she managed to retain the existing subsidy for the New Zealanders who make up about 40 per cent of users. Kiwi trampers will now bludge off their overseas fellow travellers, whose hut fees will double to $140 per night on the Milford Track, $130 per night on the Kepler and Routeburn Tracks and $75 per night on the Abel Tasman Coastal Track. Kiwi trampers fees will remain unchanged at half this rate. In addition, international children under 18 will now pay the full fee, while New Zealand kids will pay nothing.

Eugenie Sage says the free ride for Kiwi kids is "to encourage our tamariki to engage with their natural heritage." Fair enough, but why are they and their parents, doing their "engaging," at the expense of overseas visitors and their children? They certainly wouldn't get half-rates at a beach motel or bach over the same period...

It now seems "fleece the tourist" has become the new game of the day.

Indeed, and as I have argued before, so it should. Price discrimination in tourism (where locals pay different prices to tourists) is the norm internationally. New Zealand is out of line with global practice with our insistence that locals have to pay the same jacked-up prices that cash-cow tourists pay.

The first problem here is that the "Great Walks" cost more to service than they attract in fees (another point I've made before, when the Great Walks were free). So, realistically the government has to increase fees to cover those costs (or else be subsidising trampers at the expense of hospitals or schools or something else - no subsidy comes 'free' of opportunity costs). There is no rule that says there has to be one price for all, and in fact it makes more sense to charge higher prices to tourists.

Consider the difference in price elasticity of demand. Tourists have relatively inelastic demand for the Great Walks. They've come a long way to New Zealand, incurring costs of flights and so on. The cost of going on the Great Walks is small in the context of the total cost of their holiday in New Zealand. So, an increase in the price of the Great Walks is unlikely to deter many of them from paying (so, their demand is relatively price inelastic - relatively less responsive to a change in price).

In contrast, for locals the price that DoC would charge for access to the Great Walks makes up the majority of the total cost of going on the Great Walks. So, a change in the price is much more significant in context for locals (so, their demand is relatively price elastic - relatively more responsive to a change in price).

When you have two sub-markets, one with relatively more elastic demand and one with relatively less elastic demand, and you can separate people by sub-market, then price discrimination is an easy way to increase profits. Of course, the government isn't trying to profit from the Great Walks. It is trying to raise money to cover the costs while keeping access open to the maximum number of people. And that's exactly what price discrimination would allow. Charging a higher price to tourists raises the bulk of the money from tourists without deterring too many of them from going on the Great Walks, while simultaneously keeping the price low enough that locals would also want to go on the Great Walks.

Of course, you could argue, as Rudman does, that tourists are losing out on the deal. Which of course is true - their consumer surplus (the difference between the maximum they would be willing to pay and what they actually pay for access to the Great Walks) does decrease. However, I can't see why it is government's role to protect the consumer surplus of people who aren't New Zealand taxpayers (except to the extent that we don't want to overly deter tourists from coming to the country at all).

Raise the price of access to the Great Walks, and raise it even more for tourists. They can afford to pay, and would be happy to do so, having come all the way here to see the sights.

Read more:

• The Great Walks may be free, but they are not free
• Are tourism operators in NZ missing a trick?

Reducing excess demand at the Great Barrier Reef

Late last year, I wrote a post about excess demand for New Zealand's Great Walks:

When a good or service has no monetary cost, there will almost always be excess demand for it - more consumers wanting to take advantage of the service than there is capacity to provide the service. Excess demand can be managed in various ways - one way is to raise the price (as suggested by Sanson). Another is to limit the quantity and use some form of waiting list (as is practiced in the health sector). A third alternative is to degrade the quality of the service until demand matches supply (because as the quality of the service degrades, fewer people will want to avail themselves of it).

The Great Walks are not the only tourist attractions that are subject to excess demand. As Michael Vardon (ANU) wrote recently in The Conversation, the Great Barrier Reef is another example:

The Great Barrier Reef is one of the world’s finest natural wonders. It’s also extraordinarily cheap to visit – perhaps too cheap.

While a visit to the reef can be part of an expensive holiday, the daily fee to enter the Great Barrier Reef Marine Park itself is a measly A$6.50. In contrast, earlier this year I was lucky enough to visit Rwanda’s mountain gorillas and paid a US$750 fee, and the charge has since been doubled to US$1,500...

I understand that some people instinctively object to the idea of trying to put monetary values on things like the Great Barrier Reef. But I think valuation helps, on balance, because it offers a way to assimilate environmental information into the economic processes through which most decisions are made. Money makes the world go around, after all.

However this should be done on the proviso that the valuation is systematic and based on sound environmental and economic data.

Vardon's article is mostly about environmental accounting (and is worth reading if you want to learn a little more about non-market valuation of natural resources). That is, it is about placing a value on the Great Barrier Reef to justify a higher visitor fee. However, it isn't necessary to estimate the Reef's value in order to reduce the tourist pressure on it. If you are worried about there being too many visitors, you simply need to raise the visitor fee. Higher prices reduce excess demand. It is really as simple as that, and if we want to protect these natural resources (Great Walks, Great Barrier Reef, or other natural resources with names that don't start with Great), then higher prices are a simple and reasonably effective way to do so.

The deadweight loss of a pillow tax

For those of you who have missed the news over the last couple of weeks, Auckland mayor Phil Goff has proposed a targeted rate for accommodation providers in Auckland, to be used to fund Auckland Tourism, Events and Economic Development (ATEED) in its role of promoting the city to tourists. At first glance, this might seem like a useful user-pays charge. After all, the accommodation industry receives benefits from the increased tourism, so why shouldn't they pay the costs rather than the ratepayers at large?

The New Zealand Herald has several stories on this topic, including this one from Tuesday:

As part of its annual budget, Auckland Council wants to shift the funding of Ateed from ratepayers to 330 accommodation providers, ranging from backpackers to camping grounds to big hotels.

Auckland mayor Phil Goff says the accommodation sector has profited from the boom in tourism and increased room rates so it was fair it should pay for Ateed rather than ratepayers.

Money saved could be redeployed to fund infrastructure such as roads, which also benefited the tourism sector.

But the accommodation sector says it has been unfairly singled out and should not be the only sector of businesses to pay for the cost of Ateed.

In its submission it says that it gets 9 per cent of visitor spend in Auckland but is being asked to fund 100 per cent of council efforts through Ateed to increase this spend.

On average rates will increase 150 per cent for the affected accommodation providers and in some cases by more than 300 per cent.

The accommodation sector is right in its criticism of this targeted rate. There are two lines of criticism though, and the sector has struck on only the first: fairness. If a commercial business benefits from the activities of ATEED, they should be paying towards its costs. To be equitable, all businesses would pay proportionally to the benefits received, but that is clearly infeasible. Paying proportional to current property value might be a second-best option. Clearly, some sectors (e.g. finance, law firms) would pay vastly more than necessary due to high property values and low benefits received, while others would pay less relative to benefits received. I would argue that including residential ratepayers in this system would be inequitable (but others might argue the opposite, since the activities of ATEED creates jobs that benefit ratepayers).

The second line of criticism, which is missed by the accommodation sector, is efficiency. If the government has a targeted amount of funding they want to raise (e.g. $27.8 million to fund ATEED), then a small tax (like rates) on a wide number of taxpayers generates a much smaller deadweight loss than a larger tax on a smaller number of taxpayers.

To see why, consider the market diagrams below. There are two sectors (A, on the left; and B, on the right). Without the tax, both markets operate at equilibrium (prices P0 and Pa, quantities Q0 and Qa), and total welfare (a measure of benefits to buyers and sellers in these markets, combined) is the area AED in Sector A, and the area FKJ in Sector B. If the government taxes the firms in both sectors a similar amount, we represent this by a new curve (S+tax) [*]. The per-unit amount of the tax is equal to the vertical distance between the S and S+tax curves (the distance BC in Sector A, or GH in sector B). The quantities traded fall to Q1 and Qb. The prices paid by customers in the two sectors increase to P1 and Pb, while the effective prices for the sellers (the price after paying tax to the government) fall to P2 and Pc. Total welfare falls to ABCD in Sector A (with a deadweight loss, or lost total welfare, equal to the area BEC) and FGHJ in Sector B (with a deadweight loss equal to the area GKH).

Now consider what happens if the government wants to raise the same tax revenue, but by taxing only one sector instead of both sectors. This is shown in the diagrams below. Notice that there is no tax in Sector A, and total welfare is maximised at AED. However, in order to earn double tax revenue from Sector B, the government must more than double the tax rate, to the distance LM. [**] The quantity traded in Sector B falls to Qc (instead of Qb). The total welfare in Sector B falls to FLMJ, and the deadweight loss increases to LKM.

Now compare the size of the deadweight losses in the first pair of diagrams (BEC+GKH) to the deadweight loss in the second pair of diagrams (LKM). It should be clear that the size of the deadweight loss in Sector B is more than four times bigger when it is the only sector that is taxed, than when both sectors are taxed. The combined deadweight loss (when you factor in that there would no longer be any deadweight loss in Sector A in the second pair of diagrams) is more than doubled. Total welfare is therefore much lower if the tax is targeted on only one sector.

So, there are both equity and efficiency arguments against the proposed targeted rate for accommodation providers in Auckland. It probably needs a careful re-think.

*****

[*] Strictly speaking, the targeted rate is different to the specific excise tax that is shown in these diagrams. The difference is that the S+tax curve should be curved in towards the supply curve (but not ever quite touch the supply curve) to represent that the average cost of the targeted rate would reduce, the greater number of accommodation nights provided by the industry. However, I have kept the diagrams simple, as this fact makes no qualitative difference to the discussion.

[**] The government needs to more than double the tax rate, because as the tax increases the quantity sold in the market decreases, so simply doubling the tax would not raise enough tax revenue.

Price discrimination in tourism... India edition

This short post by Alex Tabarrok at Marginal Revolution contained this picture:

So, foreign nationals at the National Museum of India in Delhi pay more than thirty times the price that Indian nationals do. Of course, this type of price discrimination is a topic I've written about before. Here's what I said then (in the context of entry to Ayutthaya in Thailand, but the principle is identical):

Of course, this is an example of price discrimination - where different consumers (or groups of consumers) are charged different prices for the same good or service, and where the difference in price does not arise because of a difference in cost. So, in this case there are two groups (foreigners and locals) paying different prices for the same thing (entry into Ayutthaya, or some other tourist attraction).

How can they get away with this? Well first, price discrimination is not illegal. If it were, then you couldn't haggle over any prices (and haggling is almost mandatory if you are shopping at the markets in Thailand and don't want to get ripped off!). Second, the seller needs some degree of market power - they need to be able to set the price. Since there are few substitutes for seeing Ayutthaya and there is only one supplier, that guarantees some market power here. Ok, so that's the basic market condition for price setting sorted.

For price discrimination to work though, you need to meet three conditions:

1. Different groups of customers (a group could be made up of one individual) who have different price elasticities of demand (different sensitivity to price changes);

2. You need to be able to deduce which customers belong to which groups (so that they get charged the correct price); and

3. No transfers between the groups (since you don't want the low-price group re-selling to the high-price group).

Those conditions are generally met in the case of tourist attractions. Foreign tourists have low sensitivity to price (low price elasticity of demand) for a few reasons - there are few substitutes for visiting Ayutthaya (or other tourist attraction). Foreign tourists have usually also travelled a long way at great cost to get to Thailand, so the cost of entry into Ayutthaya is pretty small in the overall cost of their holiday. For these reasons, the foreign tourists are relatively insensitive to price and raising the price of entry isn't going to keep them away in great numbers.

Tabarrok asks:

 Is this fair or ethical? Would it be legal in the United States?

I don't know about the US, but it's not illegal here (or, evidently in India or Thailand). In fact, as I argued in that earlier post I'm surprised we don't see more of it in New Zealand. Price discrimination is a legitimate way for firms to extract additional profits from consumers who are willing to pay higher prices. It's just that it isn't usually quite as overt as in Alex's example.

The Great Walks may be free, but they are not free

My blog's been a bit quiet the last couple of weeks while I've been buried in exam marking. Now that marking is done, I can start to post on some things I had put aside over that time. Starting with the controversy over comments made by Department of Conservation director-general Lou Sanson, reported here:

It may be time to start charging for the use of the country's Great Walks, Department of Conservation director-general Lou Sanson says.

Foreign tourists could pay $100 and New Zealanders $40 to cope with a huge increase in trampers — especially overseas travellers — and their effect on the environment, he suggested.

Sanson said the country's Great Walks brand had "exploded" but this popularity had created some problems...

In March, he took the United States ambassador to the Tongariro Alpine Crossing — a 19.4km one-day trek between the Mangatepopo Valley and Ketatahi Rd in the North Island.

"Every time we stopped we were surrounded by 40 people. That is not my New Zealand. We have got to work this stuff out — these are the real challenges," Sanson told the Queenstown Chamber of Commerce yesterday...

Introducing differential charges on the Great Walks was one potential mechanism to alleviate pressure, Mr Sanson said.

"We have got to think [about that]. I think New Zealand has to have this debate about how we're going to do bed taxes, departure charges — we have got to work our way around this.

"I think a differential charge [is an option] — internationals [pay] $100, we get a 60 per cent discount."

The New Zealand Herald then ran an editorial the next day, entitled "Turnstiles on wilderness is not the answer". The editorial raised some good practical issues with charging a fee for trampers on the Great Walks:

Would rangers be posted to collect cash, or check tickets that would have to be bought in advance? How would they be enforced?

It also raised an important issue about the perception of the service provided by DoC:

A charge changes the way users regard it. The track and its surrounds would cease to be a privilege for which they are grateful, and become something they feel they have paid for.

They will have an idea of the value they expect and rights they believe due for their expense. They may be more likely to leave their rubbish in the park. The costs of removing litter and cleaning camping areas may quickly exceed the revenue collected.

However, the editorial ignored the fundamental issue of providing goods and services for 'free'. If something comes with no explicit monetary cost associated with it, that does not mean that it is free. Economists recognise that there are opportunity costs (because in choosing to do a Great Walk, we are foregoing something else of value we could have done in that time), but this is about more than just opportunity costs.

When a good or service has no monetary cost, there will almost always be excess demand for it - more consumers wanting to take advantage of the service than there is capacity to provide the service. Excess demand can be managed in various ways - one way is to raise the price (as suggested by Sanson). Another is to limit the quantity and use some form of waiting list (as is practiced in the health sector). A third alternative is to degrade the quality of the service until demand matches supply (because as the quality of the service degrades, fewer people will want to avail themselves of it).

The latter option doesn't sound particularly appealing, but it's the option that Sanson is most against, and would be the necessary consequence of the laissez faire approach the Herald editorial advocates for. Sanson already notes one way that the quality of the Great Walks is affected, when he notes "Every time we stopped we were surrounded by 40 people". If you want to take a Great Walk in order to experience the serene beauty and tranquillity of our natural landscape, the last thing you want is to be constantly mobbed by selfie-taking dickheads. The quality of the experience degrades the more people are on the Great Walks.

Pricing might not be appetising to some, but at least it would manage the demand for the Great Walks. Providing lower prices to locals is, as I have noted previously, an appropriate form of price discrimination that I remain surprised that we don't see more of in New Zealand. Of course, that doesn't negate the practical concerns raised in the Herald editorial. But if we want to maintain the quality of the experience on the Great Walks, this is a conversation that we should be having.

More on hobbits and tourism

A few weeks back, I posted about the impact of Lord of the Rings on tourism arrivals in New Zealand. The conclusion was that there was a short-term rise in tourist arrivals to New Zealand after the films, but that the effect did not persist in the longer term.

Last week the Herald ran a story about the impact of the Hobbit films on local tourism, specifically tourist spending in the Matamata-Piako District (where the Hobbiton Movie Set is located). The story was backed up by an impressive data visualisation on the new Herald Insights site. From the story:

The Hobbit film trilogy has catalysed a spending surge in the Matamata region by tourists from the likes of Australia, Germany, United Kingdom and North America.

The amount spent in the area by those tourists has risen at a greater magnitude over the past five years, relative to 2009 spending, than in any other region in New Zealand.

Of course, this is great news for the Matamata-Piako District, as it means more tourist spending, and more jobs in tourism, accommodation, and other services. However, it doesn't mean that overall tourist arrivals have increased (thankfully the Herald story doesn't imply this either), and one might rightly wonder which areas may have lost tourism spending as a result of tourists flocking to Matamata instead?

MBIE's regional activity report is an outstanding interactive tool for taking at least an initial look at these questions. Expanding on the Herald's example, German tourists' spending in Matamata-Piako increased by 535% between 2009 and 2014. The big losers (of German tourist spending) over the same period appear to be Porirua City (down 50%), Hauraki District (down 40%), and Palmerston North City (down 28%). See here for details.

It is also worth noting that German tourists were responsible for just 1.9% of tourist spending in Matamata-Piako in 2014. The trend in increased spending is apparent across many groups for Matamata-Piako - there are similar (but not as large in relative terms) spikes for spending by tourists from the rest of Europe (excluding Germany and the UK), the U.S., Canada, and Australia. But not for China or Japan.

So, an overall win for Matamata-Piako, but hard to say whether it is a net win for New Zealand.

Lord of the Rings, tourism arrivals and harvesting

I have to say that I have been quite skeptical of the anticipated impacts of movie production on tourist arrivals. Like the Tourism New Zealand site, most of what has been written seems to be based on anecdote, and seasoned with a generous dose of excessive optimism. For example, this report from NZIER shows some evidence of a rise in tourist arrivals following the release of The Hobbit, although the analysis is fairly weak and it doesn't demonstrate causality.

I just read a paper (ungated version here) that has been sitting in my 'to-be-read' pile since 2012, by Heather Mitchell and Mark Fergusson Stewart (both from RMIT). In the paper, they look at time series data on tourist arrivals in New Zealand around the time of the release of the Lord of the Rings films, as well as in Australia around the time of the release of the Mad Max films and the Crocodile Dundee films. For good measure, they look at data on employment in hotels and restaurants in Kazakhstan around the time of the release of Borat.

Focusing on the New Zealand-specific results, they find no significant impact of the first Lord of the Rings film on tourist arrivals, but significant impacts following the release of the second and third films. Specifically, after the third film they find that monthly tourist arrivals were six percent higher. However, this was offset by a decrease in the upward trend in tourist arrivals. This slower trend increase was enough to offset the short-term boost in tourist arrivals in less than two years.

In the epidemiology literature (specifically the literature on mortality) there is a term called 'harvesting', which refers to events that are brought forward in time by the effect of exposure to some stimulus. For instance, a spell of extremely hot weather might temporarily increase mortality, but much of that mortality would be among the frail, who are at high risk of death already. Short-term mortality may be higher as a result, but overall mortality might barely change.

I suspect that we probably observe a harvesting effect on tourist arrivals. Potential tourists who have an interest in New Zealand might be induced to come to New Zealand earlier than they otherwise might have as a result of the Lord of the Rings or The Hobbit. That would lead to a short term increase in tourist arrivals, but since those tourists won't visit in the future, the longer-term effect might be close to zero.

Unsurprisingly, the NZIER report doesn't even mention the possibility of harvesting. I'm not convinced that the Mitchell and Stewart paper does the best job of evaluating this either, since they look at only a relatively short time series after the release of the films - it would be interesting to know whether the decrease in trend arrivals growth is persistent, or whether it eventually tapers out and there is a return to the long-run trend growth. Perhaps there's an opportunity here for an honours project - the required data are easily obtainable from Statistics New Zealand.

The question of whether there is sustained growth in tourist arrivals is important. It is often trumpeted as a reason to subsidise movie production (in addition to direct job creation in movie production and related industries). However, if there is only a short-term tourism impact and the long-term tourism impact is negligible, then that changes the cost-benefit evaluation of movie subsidies. Although that assumes that the government even carefully considered the costs and benefits of the deal they did with Warner Bros, and other movie subsidies they provide.

Are tourism operators in NZ missing a trick?

One of the things I noticed again while in Thailand last year was the pricing strategies of tourist attractions, like Wat Pho, Ayutthaya, and so on. At these tourist attractions, the locals pay a much lower entry fee than foreign tourists.

Of course, this is an example of price discrimination - where different consumers (or groups of consumers) are charged different prices for the same good or service, and where the difference in price does not arise because of a difference in cost. So, in this case there are two groups (foreigners and locals) paying different prices for the same thing (entry into Ayutthaya, or some other tourist attraction).

How can they get away with this? Well first, price discrimination is not illegal. If it were, then you couldn't haggle over any prices (and haggling is almost mandatory if you are shopping at the markets in Thailand and don't want to get ripped off!). Second, the seller needs some degree of market power - they need to be able to set the price. Since there are few substitutes for seeing Ayutthaya and there is only one supplier, that guarantees some market power here. Ok, so that's the basic market condition for price setting sorted.

For price discrimination to work though, you need to meet three conditions:

1. Different groups of customers (a group could be made up of one individual) who have different price elasticities of demand (different sensitivity to price changes);
2. You need to be able to deduce which customers belong to which groups (so that they get charged the correct price); and
3. No transfers between the groups (since you don't want the low-price group re-selling to the high-price group).

Those conditions are generally met in the case of tourist attractions. Foreign tourists have low sensitivity to price (low price elasticity of demand) for a few reasons - there are few substitutes for visiting Ayutthaya (or other tourist attraction). Foreign tourists have usually also travelled a long way at great cost to get to Thailand, so the cost of entry into Ayutthaya is pretty small in the overall cost of their holiday. For these reasons, the foreign tourists are relatively insensitive to price and raising the price of entry isn't going to keep them away in great numbers.

On the other hand, locals have plenty of other activities they can do rather than visiting the tourist attraction (there are many substitutes), and the cost of entry is a large proportion of the total cost so is quite significant to them. So, locals tend to be more sensitive to price and raising the price of entry would deter them in greater numbers than foreign tourists.

Of course, it is relatively easy for the tourist operators to tell the foreigners from the locals (although I do wonder if Lao citizens, for instance, could sneak in by posing as locals). And from what I could tell, the tickets looked different for the locals from the foreigners and were checked on entry, so transfers between locals and foreign tourists didn't appear to be possible.

Now, having met those conditions and knowing that locals are more price sensitive than foreign tourists, it makes sense to charge the foreign tourists a higher price and locals a lower price. The foreigners won't be deterred by the high price, while the locals will come in greater numbers because of the low price for them. Voila! (I wonder what Thai for "voila" is?). Higher profits for the tourist operator, than if they set a single price for everyone.

Which brings me to my question. Why don't tourist operators in New Zealand make use of price discrimination? If I go to the Polynesian Spa in Rotorua for instance, there is one price that applies to everyone, not separate prices for locals and tourists. The conditions for these operators are the same for those in Thailand. Maybe they don't want to be seen to be price gouging tourists? Although that raises the question of why it is all right for the Thais to do it? Price discrimination could even be introduced by stealth [1] - instead of posting separate prices, you simply give a 10% (or whatever) discount to locals, while the 'regular' price (which turns out to only be paid by foreign tourists) is what is displayed. And being good to the locals makes for great press.

The only reason I can think of is a capacity issue. If your tourist attraction is capacity constrained, then lowering the price and attracting more locals might squeeze out some higher-paying foreign tourists. Having said that though, are there that many tourist attractions that are heavily capacity constrained?

Tourist operators in New Zealand may well be missing a trick. But at least they're not as bad as these failed attempts at price discrimination.

*****

[1] Though this is not as stealthy as some places in Thailand, where the price for foreigners is written in Arabic numerals, while the price for Thais is written in Thai language.