Resort-Town Pricing

18 July 2008 at 10:38 am 4 comments

| Peter Klein |

Like other members of the O&M community in the Northern Hemisphere I’m enjoying the lazy days of summer. This week I’ve been on an extended-family vacation in Destin, Florida — heart of the “Redneck Riviera” — reading mindless fiction, drinking piña coladas, and showing off my Body by InBev. One thing that surprises me is that prices at the local grocery store, and the local Wal-Mart (sorry, Walmart >|<), are no higher than the prices back home, even though the price elasticity of demand is surely lower. Why don’t resort-town stores price like stores in airports or at ski resorts? Demand isn’t quite that inelastic, but presumably less elastic than demand in year-round communities. Likewise, one would expect Walmart prices to be significantly lower in retirement communities or other areas populated by price-sensitive shoppers.

I asked my colleague Emek Basker, a Walmart expert, and she says that while there’s plenty of anecdotal evidence of variation in price (and product selection) across Walmart stores, she doesn’t know any empirical studies explaining these differences systematically in terms of price elasticities, income, labor costs, etc. Anybody know of such studies?

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4 Comments Add your own

  • 1. Rafe Champion  |  18 July 2008 at 6:09 pm

    Talk about a bus-drivers holiday, off at the Riviera and thinking about price inelasticities. Maybe you can find someone to talk to about praxeology?

  • 2. Richard O. Hammer  |  18 July 2008 at 7:18 pm

    I’ve noticed that too, prices being moderate at the coast.

    Let me conjecture that supply to the coast is not significantly more expensive than supply to inland. So the coast would have the same supply curve. And the coast should have roughly the same demand per capita.

    I agree with your supposition that elasticity of demand would be lower — among the tourists — at the coast. But would not that affect prices only during shocks? only when supply or demand made an unexpected jump? In the steady state with a predictable inflow of tourists we might predict that suppliers would offer quantities per capita similar to those inland. The price would be the same in the steady state in spite of higher demand elasticity, if I understand the issues involved.

    I am supposing that the costal communities we are considering in Florida (and North Carolina where I live) have less barriers to entry for large-volume retailers than the places you mentioned, airports and ski resorts, where prices are predictably higher.

  • 3. C. Grammich  |  19 July 2008 at 6:38 am

    Peter, do you have some examples in mind? Are they goods less likely to spoil?

    When I was in Virginia Beach last month, I found prices for several grocery items differing from those in the Chicago suburbs. For example, milk was higher, but some seasonal fruits were lower. I attributed the differences to the relative proximity of my home to “America’s Dairyland” and the proximity of the Virginia stores to areas harvesting whatever was in season at the time. I didn’t compare “beach” market items (e.g., beach umbrellas or sand toys), not having much experience buying those in Illinois . . .

  • 4. Peter Klein  |  19 July 2008 at 7:46 am

    Hmmm, I didn’t pay attention that closely. But imagine how much grief I’d be getting from Rafe if I’d done a systematic analysis!

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