Blog neighbor Greg Sandow posts about the relationship between arts funding and gambling, especially regarding early Italian opera. It's tongue in cheek, but he concludes: For those without a sense of humor: I know very well that gambling raises moral questions, and legal questions, too, not to mention questions involving real estate. Where would the Met put its new casino? Where in the opera house would there be room enough?  But let’s not forget that gambling — I’ll never call it “gaming,” its euphemistic marketing meme — has … [Read more...]

As my blog-neighbor Lee Rosenbaum reports, the proposed 2014 budget from the White House would cap the tax benefit for charitable donations at 28%. In the U.S., where donations are deducted from the income tax base, the actual rate at which your donation is subsidized is your marginal tax rate, i.e. the rate that applies to your last dollar of income earned. Marginal tax rates rise with income, with a top rate of 39.6%, and so a wealthy donor who gives $100 to the local museum gets an income tax reduction of $39.60. The budget proposal would … [Read more...]

In the previous post we set out the basic idea behind price discrimination: your potential audience has different maximum prices they are willing to pay for what you have on offer (their "reservation prices") and you want to find a way to get individuals to pay something close to their personal maximum, so long as it covers their marginal cost to you. Two-part pricing is a type of indirect price discrimination: everyone is offered the same deal when it comes to prices, and they choose options that reveal whether they have high or low … [Read more...]

A little more than a year ago, J.C. Penney's new management announced a change to its pricing strategy, in an effort to turnaround the troubled store - get rid of "nonstop promotions" and move to a simpler pricing structure. In the current issue of the New Yorker, James Surowiecki tells of the resulting fail: The biggest problem with [J.C. Penney CEO Ron] Johnson’s strategy is simple: he misread what Penney’s customers wanted. Doing away with constant markdowns was, on the face of it, sensible: instead of starting with a high price and … [Read more...]

While at the gym this morning I got to thinking about ... what I pay to go to the gym. I have a membership, although the option of day passes is available to me. The rational thing for me to do at the start is to figure out how often I intend to go, and calculate which is the better deal, membership or day passes. I know that I am more likely to go more often with a membership because the monetary marginal cost to me (although not the cost in time) will be zero dollars per visit, and I should take that into account. But are people rational … [Read more...]

My previous post drew lessons for museum pricing from what we observe in the prices set by cable television providers. But how can for-profit pricing be relevant to nonprofit museums, to orchestras and opera? Don’t the nonprofit arts, unlike cable companies, have a mission to be accessible to all patrons, regardless of income? Let me draw from what might seem at first a very unrelated policy issue. All rich countries except the US raise government revenue through value-added taxes (VAT). These are sales taxes applied to all goods and … [Read more...]