Should museums charge visitors according to the length of their visit? In a recent paper Bruno Frey and Lasse Steiner argue they should. We pay per hour when we park our cars, so why not when we go to view art? This question came to mind during the recent flare up over the pricing of cable television. Yes, cable television and art museums (and amusement parks!) have something in common.
Those of you who subscribe to cable television know that even the most basic package contains a lot of channels, many of which you never intend to watch. Comcast’s “Digital Starter” has about eighty channels, including ESPN, PBS Arts, Spike, Jewelry Channel, a collection where it is impossible to imagine anybody watching all of them. Why can’t we just buy the few channels we will actually watch? Those who are not sports fans get particularly annoyed that cable prices are rising as different sports channels come online and increase the fees to all subscribers, even those with no interest. Matt Yglesias suggests that lack of competition amongst cable providers is the real problem, but I don’t agree: if offering channels to customers a la carte were a good deal for viewers, some entrepreneur would start a service that offers such a model. But that hasn’t happened.
The reasoning was first explained in 1971 by Walter Oi, in what he called the “Disneyland dilemma.” Consider an amusement park, which has to decide what to charge for admission, and what to charge per ride. The higher the one price, the lower the other must be to continue to attract customers. He showed the solution to this “two-part pricing” problem is to first set the price of rides at the cost of providing a ride to one more customer (what economists call “marginal cost”), and then set the admission price according to the demand for admissions given the ride price that has been selected. If the cost of providing a ride to one more customer is effectively zero, then give free rides, and price admission accordingly.
In cable television, channels are like rides – customers pay a subscription fee, and then can watch whatever channels are in that basic package for free, for as many hours as they like. And this makes sense, as the marginal cost of providing those extra channels and viewing time to the customer is zero (it doesn’t cost my cable provider anything if I happen to watch Jewelry Channel at 3:00 a.m. when I can’t sleep). I don’t watch every channel, just as most people who go to Disneyland don’t ride every ride, and I don’t read every article in my New Yorker subscription. We pay the admission fee because of the channels, or rides, we do like, and find it worth it. We can’t ask Disneyland for a discount if we say we are not interested in It’s a Small World, and we don’t get a discount from our cable provider if we don’t want to watch Fox News.
And now let’s go back to the museum, which also has a two-part pricing problem. It can charge an admission fee and offer free “rides”, which in this case are all the different rooms and exhibits, for as many hours as you like, or it could lower its basic admission price (perhaps all the way to zero) and charge per room viewed, or per hour of viewing. But for almost all museums, the marginal cost of allowing the customer to stay for another hour is zero – I don’t impose costs on the Frick by staying for three hours instead of two. And so it doesn’t make sense to charge me extra for that third hour. (Note there might be “special” exhibits where we depart from this rule, in the same way we pay extra if we want HBO with our cable – we’ll talk about these exceptions in a later post).
The one exception that makes sense is where the museum is so crowded that my staying an extra hour really does impose a cost – I am making the museum more crowded for all the other visitors. And this is where the analogy of a car parking lot makes sense – the car is taking up scarce and valuable space. But the museums that face that issue are few. For the vast majority, giving visitors as much time as they want under a single admission fee, even if they don’t use it, makes sense the same way big bundles of cable channels make sense.
This is For What It’s Worth, a blog about pricing the arts. Here we will talk about setting prices for museums, performances, festivals, and all the other things arts organizations sell once the visitor is in the door. We’ll talk about hot topics like dynamic pricing, but also perennial issues such as single performances versus subscriptions and memberships, student and senior discounts, scaling the house, bundling, two-part pricing, and pricing to further the mission of nonprofit arts organizations. We’ll see what we can learn from others, whether in the hospitality industry, sports, travel, groceries, fairgrounds, anything that might provide some insights.
I’m happy to hear from all readers with comments, observations, and, especially, topics you would like to see covered. Thanks for reading!