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Theme Park Optimal Pricing

Research Paper (Due Week 8) One of the most difficult decisions that managers have to make is the optimal pricing of their products and services. To help students understand the problem and become savvier in devising solutions, students will submit a research paper exploring the optimal pricing of theme park tickets, particularly in central Florida Background Theme parks are big business in the State of Florida. Theme parks just do not make up prices for admissions and discounts for various groups. They employ a number of economists, statisticians, econometricians, market researchers to analysis and collect data. They then utilize the data collected and employ the latest techniques in the areas or price theory, price discrimination, revenue management, yield management and market segmentation to maximize revenue to their park and make sure they have an advantage over their competitors, (just like this class teaches). For instance, if you walk up to a Walt Disney World ticket window you will see a ticket price schedule of: 01 Day Magic Kingdom $105.00 01 Day Non-Magic Kingdom $ 97.00 02 Day $192.00 03 Day $275.00 04 Day $305.00 05 Day $315.00 06 Day $325.00 07 Day $335.00 You may not think anything of this price schedule, but it is very clever and sophisticated. Try applying some basic economic calculations to the ticket scheme above (try calculating the average and marginal cost of a ticket per day) and you may notice something. What does this imply for Disney competitors (Universal Studios, SeaWorld, Busch Gardens and LEGOLAND)? Still do not get it? Try clicking on the following link and see what this non-economist noticed: (You may have to copy and paste the link below to get it to work.) http://www.themeparkinsider.com/flume/201106/2537/ See how ingenious they are. How did they know to do this? Now add in some other options to the basic ticket. The Park Hopper® option which lets you visit more than one park in a day is an additional $64.00 (How did they know to charge $59 for this option rather than, let’s say, $75 or $10); and/or a water park option and more option for an additional $64.00 (Why $60?). Or, bundle the Park Hopper® and water park option and more for $90.00. (Note: bundling items is another pricing scheme. Investigate it. Did you ever wonder why cable T.V. companies never let you pick individual channels, but rather just tiers and groups of channels.) Disney offers several different group discounts to various groups such as the military; and, the biggest one of all—that we have all taken advantage of—being a Florida resident. Florida residents can save 10% to 20% or even more on their tickets over non-Florida residents. Why? (Why 10 to 20%? Where did these amounts come from?). On their Web-site Disney says, “Thanks for being our neighbor.” (Hint: The professor thinks being a neighbor has nothing to do with it; but price elasticity of demand does. Why do you think Florida residents are more price sensitive than non-Florida residents?) There are many group discounts and sub-group group discounts Disney offers; for instance, being an AAA member and a Florida resident entitles you to an additional discount and access to special tickets. Why? Your Assignment Theme park ticket pricing operation is very sophisticated and precise. I chose Disney because they are the best in the business. The professor has hired or retained you to come up with a profit maximizing ticket pricing scheme for a theme park in central Florida—or elsewhere for that matter. You may want to perform an economic intelligence operation on the Walt Disney World Resort in Florida. Your job is to find out as much as possible about how (or could) Disney or other theme park’s prices their theme park tickets, options and discounts, i.e., what pricing models do they use? (Timesaver: Disney is not going to tell you.) How does Disney decide its group discounts? (When you do your analysis, I would stick just to Florida and non-Florida residents as the two main groups.) You are to compile all your findings into a research paper presented to the professor by the end of the semester. The paper will have at least 10 pages of hard core economic analysis followed by several pages of references, a table of contents page, abstract and cover page—(at least 15 pages in all. The paper must be in APA format and submitted through Turnitin. Relax. There is no right or wrong answer to this assignment. In fact some of your analysis will have to be speculation, e.g., Disney could use the XYZ hedonic pricing model (what’s a hedonic pricing model?) because it gives similar prices. In addition to the normal Warner University’s written rubric criteria—spelling, grammar organization etc., you will be graded on how much information you uncover. How useful your information is; for instance, could I use the information to start up a theme park in central Florida competing with Disney by following Disney’s pricing strategy as reported by you? The analysis and pricing must be based on solid an economic concepts and principles. And most importantly, did I, your professor, learn anything from your paper. Outside of some general economic concepts and principles, I do not know specifically how Disney prices its tickets (i.e., the exact models or calculations made). That is why you are doing this paper, so you have the potential to teach me a lot. Have some fun with the assignment. The more I learn the higher your grade. If I learn a lot from your paper and it is well done (written). I will ask your permission to use it in future classes to teach future students here at Warner University. Helpful Hints Here is how I would start. I would make sure I have a very good understanding of the following topics in economics: The law of demand and its determinants; consumer choice theory—diminishing marginal utility; consumer surplus; price elasticity of demand, cross elasticity of demand and income elasticity and its determinants; price discrimination (1st, 2nd and 3rd) marginal, average and total revenue; how elasticity (elastic verses inelastic) affects total revenue with respect to price increases and decreases; monopoly pricing; marginal cost and average cost pricing and other advance pricing techniques maybe even some statistical/econometric basics. To do this, I would review principles of economics textbooks, intermediate price (economics) and managerial economic textbooks maybe even some financial text books (and journals) on how to price stock options (puts and calls) etc.. Big hint: understanding a two part tariff pricing plan could go a long way in aiding your understanding of the problem. You know what I would read chapters 3, 9 and 10 of your textbook and my article first to get an idea of what you need to do. You have to read them anyway so you may want to get started. Once you have re-familiarize yourself (you should have learned this stuff already) with the material mentioned above I would then start to search the scholarly economic, financial and business journals looking for information on how to price various items also look for such search terms as: price discrimination, revenue management, yield management or market segmentation etc.. In reality, I would be surprised to find an article/book on how to price theme park admissions—but who knows. (Wouldn’t that be a time saver?) Most likely you will find an article someone wrote on how airlines set the price of an airline seat (meaning air fare). You may be able to adapt this to theme park pricing. I suspect Disney does a lot of this. Disney economists come a across a journal article describing a pricing model for an airline seat (just an example) and adopts and tweaks the model , plugs in Disney data and: Bingo an airline seat pricing model is now an theme park pricing model ( or at least used to verify the accuracy of their own pricing models) with some adjustments made. Also, another big hint, check out articles that research how professional sports teams price their products. So be on the lookout for these type of articles they could be very useful. In my above narrative, I gave some useful information about Disney’s pricing philosophy some of it obvious some not so obvious. You might want to read it over again. The Legal Details Students will submit a research paper exploring the optimal pricing of theme park tickets, particularly in central Florida. The paper will be at least 15 pages long double spaced. It will contain a title page, abstract TOC and reference pages and be in APA format. The paper will be 50% of you course grade. It will be submitted through TURNITIN—a plagiarism checker. A zero will be given for a similarity given for a similarity score of over 50%. No more than 30% of the paper can be quotes. 1.Research Paper. Eighty percent (80%) of papers grade will come from its content 1.1 Thesis and Introduction. Clear, logical defensible central augment in an introductory paragraph that explains the paper. 15%. 1.2 Conclusion. Summary of your arguments and concluding arguments about the paper. For instance, did you raise new ideas? 10%. 1.3 Use of examples. Proving you points through the use of economically sound economic theories principles and concepts. 50%. 1.4 Narrative and English Usage. How well the paper tells a story through the use of sources and standard English (spelling, punctuation, grammar and syntax, no contractions) foot/end noting, Bibliography when applicable. 25%. 2. Research. Twenty percent (20%) of the grade will come from demonstrating college-level use of sources, e.g., books/monographs, primary sources and journal articles—most of which ca be accessed the LRC’s data base collection. It must be have at least five high quality journal articles and/or books as reference—not including the ones I gave. Points will be deducted for using inappropriate or not including peer reviewed journal articles. Final Words You have the potential to learn a lot about the pricing of a product or service. Not too many people know how to do this. By taking full advantage of the opportunity outlined above, you can give yourself a big competitive advantage over others in the job market and life. Have fun! References to Start You may use these sources and reference them, but they do not count toward your total of five quality journal articles. Brooks, S. (2006). Evaluating Inelastic Ticket Pricing Models. International Journal of Sport Financing, 140-150. Courty, P. (2003). Ticket Pricing under Demand Uncertainty. The Journal of Law and Economics, 1-17. Humphreys, D. C. (2007). Ticket Pricing, Concession and Attendence at Professional Sporting Events. International Journal of Sport Finance, 161-170. Lutz-Alexander Busch, P. A. (2011). Ticket Pricing and the impression of excess demand. Economics Letters, 40-42. Marburger, D. R. (1997). Optimal Ticket Pricing for Performance Goods. Managerial and Decision Economics, 375-381. Soskin, B. M. (2010). Disney's return to theme park dominace. Tourism Economics, 235-250.
Research Paper (Due Week 8) One of the most difficult decisions that managers have to make is the optimal pricing of their products and services.
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27 September 2016
28 September 2016
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