Question

Ocean Park and Disneyland are the two theme parks in Hong Kong. They deemed to be so different in their theme and attractions that they are not substitutes to one another.

The two theme parks have their 1-day ticket prices revised upward in 2019 as in the following:

Theme Park	Ticket	Was	Now
Ocean Park	Adult (Ages 12 or above) Child              (Ages 3 – 11)                  Senior (Ages 65+)	HK$480                           HK$240               Free of Charge	HK$498                        HK$249            Free of Charge
Disneyland	General Admission (Ages 12 – 64)                Child (Ages 3 – 11)                  Senior (Ages 65+)	HK$619                           HK$458                           HK$100	HK$639                        HK$475                        HK$100

(6) From the ticket prices now available (see above table) at Ocean Park, it seems that uniform pricing, i.e. charging a single price to all is not ideal. Basing on the economic concepts/theories that you have learnt in the course (only highschool econ) , what do you think the rationale behind,

1. From the standpoint of Ocean Park
2. In the aspect of economic efficiency (use a diagram to show the point)                                                                             (8%)

Answer 1

6) a. Based on the table presented and the information given in the question, the Ocean Park apparently has enough market power or price-setting power to engage in third-degree price discrimination based on the age distinctions or divisions of its customers. As indicated by the information given, there are two major theme parks in Hong Kong which are not substitutes at all, which provides a considerable market power or price-setting power to each of the parks and hence, both the theme parks can effectively engage in third-degree price discrimination on the basis of various age groups among their customers. Third-degree price discrimination is one of the major types of price discriminatory conduct which implies charging different prices to different set or groups of consumers for the same product or services on the basis of certain characteristics or attributes such as age, gender, location, product or service utility, and so on. The different actual prices charged by the firm to the respective consumer groups under such circumstances are ideally determined by the differences in the price elasticity of demand among the concerned consumer groups or divisions and the extent of the market power or price-setting ability of the firm. In this instance, Ocean Park is able to charge different prices to different set of consumers based on the age group with the primary main objective of extracting the maximum possible consumer surplus from each of the consumer groups, considering that the management or the administration of Ocean Park has some or full information about the maximum willingness to pay of each of the respective consumer groups or divisions and it can successfully prevent resale of park tickets. Hence, the park can effectively maximize its overall or total profit from different groups or set of consumers by charging respective prices that can cover the maximum possible portion or part of the consumer surplus from each of the groups or their maximum willingness to pay to obtain general admission to the park.

6) b. Now, observe from the table that Ocean Park charges a different set of prices to different consumer groups implying that the maximum willingness to pay for general admission varies among the concerned consumer groups and each of the age groups has a different pricing preference for general admission or demand curve in the theme park industry or market in Hong Kong. Figure-1 in the attached document below illustrates the market outcomes under third-degree price discrimination for each of the consumer groups in their case. Part-a) in figure-1 illustrates the market outcome for adults(age 12 or higher). Da denotes the demand curve of the adult section of the consumers and MRa represents the marginal revenue obtained from selling admission tickets to the adult group. The park is able to charge the highest price to the adult group due to a relatively inelastic demand curve of the adult group or this consumer group is relatively price-insensitive or unresponsive. In part-b) of figure-1, the market outcome of the child section of the consumer group has been depicted. Dc represents the demand curve of the child section of the consumer group(age group 3 to 11) and MRc denotes the marginal revenue obtained by the park from selling admission tickets to the child section. Now, observe that the price charged by the park to the child section is comparatively less than the price charged to the adult group, indicating that the children are relatively more price-sensitive or responsive than their adult counterparts or in other words, the price elasticity of demand for admission tickets of child section is relatively higher than that of the adult group. Finally part-c) of figure-1 illustrates the market outcome pertaining to the senior section of the overall consumer group(age 65 or higher). Ds represents the demand curve of the senior group and MRs denote the marginal revenue obtained by the park from selling admission tickets to the adult group. The park does not charge any money to the senior customers based on the assumption or observation that they exhibit a perfectly elastic demand curve and any slightest increase in the price of admission ticket would completely deter them from visiting the park. Therefore, the adult customers can basically obtain any number of tiekcts completely free of charge. Most importantly, observe that in all three cases, the economically efficient point is denoted by the number of tickets sold by the park at the level where the price charged to each respective customer groups is equal to the marginal cost of ticket generation or printing or in other words, a single or uniform pricing system, in this case, would yield maximum economic efficiency in the market which corresponds to the marginal cost of ticket generation or publishing by Ocean Park. The MC represents the marginal cost of the park in this instance, which has assumed to be constant for the sake of simplicity of the discussion and better understanding. In all of the cases, the park maximizes its profit by selling the number of tickets which corresponds to the equality of marginal revenue obtained from selling tickets to each individual customer group and the marginal cost of the publishing or printing the tickets, which is a clear deviation from the economically efficient market outcome in this case.