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Published byLilian Todd Modified over 9 years ago
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Why do theme parks like Ocean Park offer huge discounts to Hong Kong residents and not to tourists? Nipun Sharma
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Brief Outline Introduction - facts and assumptions Scenario 1 – No discount to local residents Scenario 2 – Heavy discounts to local residents
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Ocean Park One day ticket to Ocean Park: – $ 185 / day Most expensive annual Pass available to a HK resident: – $ 550 / year Do the math… – $ 550 / 365 days ~ $ 1.5/ day
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Comparison $ 185 Vs. $ 1.5 Tourists pay 122.8 times the money!!
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Rationality assumption Opportunity cost for most people to spend a day at OP would exceed $ 1.5 – rational people will not attend every day (more like 3-5 times a year). If locals were irrational, Ocean Park would be in debt because $ 1.5 would presumably be far below their MC.
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Facts and assumptions Tourists are generally not very price sensitive inelastic demand Locals are elastic demand – Diminishing marginal utility Tourist demand is higher during peak season ( Dec and Jan only) and lower the rest of the year Demand from locals is steady all year long
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Scenario 1: Don’t offer discount to locals High demand from tourists during peak season. Low demand from tourists during the rest of the year. Low demand from locals all year long.
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Numbers are relative The numbers are not REAL – just a set of easy numbers to show the relationship. OP needs minimum 40 tickets sold every month to meet their reservation point
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Tourist demand
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PLUS
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Demand from locals
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EQUALS
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Total demand under Scenario 1
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Observations Ticket sales from Feb – Nov = 30 tickets short of reservation point. Ticket sales in Dec and Jan = 60 tickets above reservation point. Overall, park will not make enough profits year along will shut down in the long run.
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Scenario 2: Heavy discounts to locals High demand from tourists during peak season. Low demand from tourists during the rest of the year. Moderate demand from locals all year long.
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Graph it out – same tourist demand
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PLUS
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Demand from locals - moderate
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EQUALS
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Total demand under Scenario 2
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Observations Ticket sales from Feb – Nov = 20 tickets above reservation point Ticket sales in Dec and Jan = 120 tickets above reservation point Park will make more than enough profits to support it self all year long. Peak season will be HUUUUUGE.
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Conclusion Scenario 1: OP can only sustain it self during peak season and be in debts during the rest of the year Scenario 2: OP will make a ridiculous amount of profit during peak season and a good amount of profit the rest of the year. Basic price discrimination Tourists – not price sensitive – incentive not required Gives residents incentive to revisit
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Words from the creator of OP RAISE YOUR HAND FOR NIPUN…PLEASE. THANK YOU.
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