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Sunday, January 06, 2008

Another entity that wants to "see my papers"?

The sign above hangs next to the admissions desk at the Discovery Place in Uptown Charlotte. The picture was taken on the afternoon of January 6, 2008. At first blush, the policy seems to offer an affirmative reason for checking ID's when someone flashes a membership card: ensuring that someone else isn't using your card maintains the value of the membership.

This doesn't really make a lot of sense, at least in terms of economics. If I loan my membership card to a friend, this might actually increase the value of the membership to me as I would have performed an act of kindness for my buddy or, alternatively, I would be able to ask for a return favor in the future. Therefore, checking my buddy's identification and stopping him from using my membership card would not maintain the value of my membership. Indeed, I might be willing to spend more on a membership if I could loan it to friends and family (more on this below).

If I lose or someone steals my card, I would inform DP and have a new card printed if the net benefits of the (remaining) membership are greater than zero. If someone else uses the original card, it would seem that the net benefits of the remaining membership are unlikely to fall. I'll admit to the possibility that someone might suffer lower utility knowing that someone else is using their card to access the DP, but this would not be true in my case.

If I attempt to use someone else's card to access DP, I am hoping to gain the benefits of visiting without having to pay DP the admission price. If I borrowed a membership card from a neighbor, I might pay him by mowing his lawn, washing his dog, or taking his kid for the evening so he and his wife can have a date. In this case, my purchasing a membership will not maintain the value of my neighbor's membership, and checking my identification might actually reduce my neighbor's membership's value as he and the missus might not get that date (at least without having to pay a babysitter cash).

Granted, if sufficient people attended DP with their friend's membership cards, the revenue of Discovery Place would be lower than it otherwise would be. Why would this matter? While most of DP's costs are fixed, many of the exhibits are "hands on," and might degrade faster with more attendees. If a sufficient number of exhibits were to break or be "out of order," this would reduce the value of my membership. However, it is only feasible to use the pass once per visit; while pass-outs might be possible, the opportunities weren't obvius. Thus, whether I attend or my neighbor does in my stead wouldn't matter; the same number of people attended DP. It might matter if my neighbor goes to DP when I wasn't, which might be the most likely scenario. Nevertheless, I am not sure how many additional people spinning a magnet and disrupting a compass will break either said magnet or compass, and therefore I am not sure I buy this theoretically plausible rationalization for the "check ID" policy.

No, my guess is that in the short-run the marginal cost of an additional attendee is rather small. Thus, if X people buy a membership, and that is sufficient to cover the fixed costs, it is essentially immaterial (in the short run) how many people attend DP with or without a "valid" membership card.

It would seem that the only agent who stands a high probability of retaining "membership value" by checking identification is DP. As most of the costs are fixed costs, ensuring that membership cards are not shared seems only to serve the profit of DP. I don't have a problem with that; I have a problem with the way the sign is worded. Why not just come out and say "We check identification to ensure that our revenues are higher than they otherwise would be." - oh yeah.

Moreover, DP is yet another entity that wants to "see my papers," which is (for some reason just recently) really starting to bug me - hence I have my picture on my credit card. Indeed, in Fort Worth, our membership cards to the Ft. Worth zoo had our pictures printed on them. I am not sure that the pictures were ever checked, but I am sure for many people it was deterrence enough to not loan the membership card to their friends or neighbors.

It sounds like DP is either trying to do their part for Homeland Security or their management thinks that by checking ID's their revenue is higher than it otherwise would be. Are they correct? I doubt it.

Consider a membership where the card can be used by anyone. One way to make this enforceable is to change the color of the membership card. If an individual or group of individuals wish to purchase a transferable membership, they could do so for a lower per-person cost but the membership would actually earn more revenue for DP.

Consider the following scenario: The DP membership costs $75 for one year; we think we are going to have net positive value after the year, so we bouth one. However, if we only valued the membership at $50 we would not purchase the membership ($50-$75 = -$25 in value). In this case, DP would receive no revenue (and we get no benefit from a membership). What if we had a neighbor who also valued a membership at $50 and therefore also wouldn't purchase a non-transferable membership? If DP offered a transferable membership for something between $50 and $100, my neighbor and I would purchase the membership together and both of our families would enjoy $50 worth of benefit. If DP had enough information to know our joint value on a transferable membership was $100, they could charge us that amount (we would have zero net benefit in the end and be indifferent between purchasing the joint membership) and have $100 more than they would not selling two $75 non-transferable memberships.

The scenario sounds good, but even if two people purchased the membership, couldn't one or both offer the membership card to other people, who therefore free-ride on the original $100 membership and return us to the same problem? Perhaps they could, but exactly how many people could you offer your membership to over the course of a year? In my case, probably no more than three or four families. Perhaps someone else is the member of a church, PTA, or other organization with dozens of members in the market for Discovery Place - but if this were the case, DP could put a limit on the number of times a particular membership card could be used, regardless of who uses it. In this case, DP would charge some multiple of, say, the $50 valuation used in the previous example.

These are only a few of the most obvious ways to combat the transfer problem, an in a way that would likely earn DP higher revenue (and profit). I think non-linear pricing is one of the most fascinating aspects of firm behavior, and I am sometimes amazed by the cleverness with which firm owners/managers extract more surplus from their consumers, often enhancing efficiency (although don't tell the anti-trust lawyers about that). The fact that there are still a large number of firms that do not price discriminate - and instead "check ID's" - is also interesting.

Also, two new "You Can't Park There" examples from the parking garage near the DP. here and here

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