Transcript NCCU Swimming Poolx

Managerial Economics
Case Report
NCCU Swimming Pool
國貿二 黃德葶 102207332
經濟二 林尚賢 102502028
財政三 鄭雅文 100207228
Outline
1.Introduction of NCCU Swimming Pool
2.Pricing Policy
1)Package Deal
2)Direct Segment Discrimination
3.Externalities
4.Problems & Solutions
Introduction of
NCCU Swimming Pool
NCCU Swimming Pool
Opening Hours
Monday 06:00 to 22:00
to
(No Entry after 21:30)
Saturday
Sunday
06:00 to 18:00
(No Entry after 17:30)
Holidays Closed
Specifications
• 50 Meters, 8 Lanes
• Water Depth：
Depth of 130cm at Both Ends
Depth of 150cm in the Middle
Pricing Policy
Economics Analysis
Package Deal
one time admission, monthly ticket, annual ticket……
Direct Price Discrimination
discriminate among segments of buyers
Package Deal
• Charge buyer just a little less than her/his total benefit
• Leave buyer with almost zero surplus
When a student wants to go swimming …..
Though I do not
swim well, I want
to cool down in
the pool in such a
hot day.
one time
admission
I am not busy in
the first week of
school, so why
not go swimming
monthly
ticket
Oh, how I love swimming! It
can not only make me
healthy but also help me
lose some weight. I want to
go swimming every day.
annual ticket
Admission
• Fees for NCCU students
per time
monthly
semiannually
annually
$ 40
$ 250
$ 1,000
$ 1,600
• Fare for Students: $ 40/time
Suppose that the demand
curve of student A is as the
right
• D=MB=65-1.25q、MC=40
when MB=MC, p*=40、q*=20Student A is willing to swim
20 times semiannually
Buyer
Surplus
$250
Willingness
P
65
to Pay
$1,050
Payment MC
$800
40
D=MB
20
Q (time/semi-year)
Benefit
Ticket per Time
Ticket/Semiannually
NCCU Earning：
NCCU Earning：
$40*20=$800
$1,000
65
65
40
MC
40
MC
D=MB
D=MB
20
20
Benefit
65
Ticket/Semiannually
NCCU Earning：
40
MC
$1,000
D=MB
20
• Earning/semiannual($1,000)> Earning/time ($800)
• The difference between these two is the buyer
surplus taken away by the supplier
• Package Deal leave buyer with almost zero surplus
to increase the total profit
Which one of the policy
is applied by NCCU?
Uniform Pricing
Complete Price
Discrimination
Direct Segment
Discrimination
Oh My God!!!
What is the correct answer
Uniform Pricing
• Leave buyers a lot of surplus
• MR = MC
• Set the incremental margin percentage equal to the inverse
of absolute value of price elasticity of demand
Wrong
• (price ‒ MC) / price = ‒1/e
Buyer Surplus
Price
MC
Complete Price Discrimination
• Know the entire individual demand curve
• Leaves no buyer with any surplus
• Sells to every potential buyer
$
marginal
unit
Wrong
marginal
cost
0
quantity
Direct Segment Discrimination
• Price by segment
• Fixed identifiable characteristic
– basis for segmentation
•
•
•
•
age
gender
nationality
location
• No re-sale
NCCU applies
direct
segment
discrimination
poilcy
Direct Segment Discrimination
• In reality, complete price discrimination cannot be realized
as the sellers do not have sufficient information
• Segments
• Different incremental margin among segments
• -1/e
• Lower the IM% to segments with high demand elasticities
Identity
On Campus
Off Campus
NCCU Swimming Pool Regular Fares
Elasticity
Students VS Faculties
Students’price elasticities are
relatively higher
Faculties ‘ price elasticities are
relatively lower
Law of Demand
Faculties VS General Public
Faculties
General Public
Encourage faculties to
swim more at school’s
swimming pool by setting
a relative low price (lower
than the market price)
Control the numbers
of general public by
setting a relative
high price, in order
to keep the
swimming quality at
school
Comparison of the Prices of Swimming
Pool Tickets in Taipei City
Place Parks and Street
Lights Office,
Public Works
Department,
Taipei City
Government
Fare
$110
Taipei
Wen-shan
Sports
Center
$ 110
Taipei
ChungCheng
Sports
Center
NCCU
Swimming
Pool
$ 110
Faculties $60
Lower
General
Higher than $110 Public $150
No Resale Among Segments
Students
Student
ID
Faculties
Faculty
ID
Faculties
General
Public
Some Extensions
• Homogeneous segments
• Heterogeneous segment
Situation 1
all consumers identical within segment
• Suppose NCCU Swimming Pool provides service for faculties and
students at the same marginal cost of $30
• Students are willing to pay $50, while faculties are willing to pay $90
for swimming per time. The willingness to pay of both segments
exceed NCCU Swimming Pool’s MC. Therefore, it should set the price
at $50 for students and $90 for faculties
• NCCU Swimming Pool would earn incremental margin of $20 from
each student, and $60 from each faculty
• NCCU Swimming Pool is able to achieve complete price
discrimination through direct segment discrimination
Situation 2
uniform price within segment
• If buyers within each segment are heterogeneous and NCCU lacks sufficient
information to identify sub-segments, then it could apply uniform pricing within
segments.
• Let the demand be as shown in figure1 and 2 next page:
• 1. Suppose that the profit-maximizing price of faculties is X, the price elasticity of
demand is -1.5, then NCCU Swimming Pool should set the price at X
• Suppose the IM=1/1.5, (X-30)/X=0.67; thus, the price of a faculty fare is $90,
which the quantity demanded is 5 tickets (per week)
• 2. Suppose that the profit-maximizing price of students is Y , the price elasticity of
demand is -8/3, then NCCU Swimming Pool should set the price at Y
• Suppose the IM=3/8, (Y-30)/Y=3/8 ; thus, the price of a student is $48, which the
quantity demanded is 3 tickets(per week)
On Campus：Students VS Faculties
Faculty
Figure 1
Student
Figure 2
• The faculty demand is less elastic. Therefore, NCCU should
set a relatively high incremental margin percentage on
faculty fares
• Profit Contribution(Faculties)： (90-30)*150=9000
• Profit Contribution(Students)： (48-30)*500=12000
• Total Profit Contribution=$21000
Externalities
What kind of
property is NCCU
Swimming Pool
Belong to?
Quasi-public Goods
Rival
Excludability
Non-excludability
Private Goods
Ex: Food, Clothing
Common Resource
Ex: Ocean resources
Non-rival Club Goods
Ex: Swimming Pool
Public Goods
Ex: National Defense
Externality?
Positive Externality
Swimming
Increase
Income
Lower the
medical
expenditure
Income VS Health
The curve labeled y(h) shows the impact
of health on the level of income per capita.
For higher values of h, workers are able to
produce more output, so the curve is
upward sloping.
Negative Externality
Summer
Demand for
swimming increases
More people
CROWED
One cannot enjoy
swimming
Negative Externality
Due to the heat,
people’s preference
on swimming
increases
Demand curve shifts
to the right (D1 →D2),
equilibrium price
increases(P1 →P2)
Problems & Solutions
How to solve the externalities?
• Swimming Pool (non-rival)
• Crowed in summer
•Germs are likely reproduce in the crowed pool
• Affect the consumers’ right of swimming
Problem：
Same prices in both summer and winter
Solution
• Set different prices
among different
seasons
Different prices in summer and winter
• Fewer demand in
winter
• Excess Supply
D
• More demand in
summer
• Excess Demand
D
S
40
40
S
Different prices in summer and winter
• Lower the price in
winter
D
• Raise the price in
summer
D
S
40
20
60
40
This can solve the problem of excess demand and supply,
which makes the price and quantity back to the equilibrium.
Thus, it solves the problems caused by the externalities, for
instance, crowded swimming pool in summer
S
Other Suggestions
Increase swimming pool profit!!!
How to increase the profit?
• Set up swimming classes
• Sell some swimming
equipment
Set up swimming classes
This can encourage those who don’t swim originally to consume, which
increases the consumers in NCCU swimming pool.  more profit
Sell some swimming equipment
Swimming cap
goggles
Swimming Suit
• Swimming Pool Rules：
Those who don’t wear
swimming suit, goggles
and swimming cap aren’t
allowed.
• People who do not have the
swimming outfit with them
have lower price elasticity
of demand to these
swimming equipment.
Therefore, swimming pool
can increase its profit by
selling these products.
Last but not least, …..
Improve Facilities
Enjoy Swimming Time!!