Tuesday, 8 July 2014

Stonehenge and fair pricing

We were recently passing Stonehenge and so stopped off to see what the new visitor's center was like. Given that we are members of English Heritage it was free for us to visit. Most visitors, though, were stumping up the standard entry fee of £13.90. And, to put it bluntly, £13.90 seemed like a bit of a rip-off.
         Why a rip-off? Stonehenge is a truly remarkable site. It is arguably best seen, however, from the many paths in the surrounding countryside - and these are completely free for anyone to walk. The entry ticket only gets you a 'little bit closer' to the stones. And I'm not sure that's worth £13.90. To put things in context I would make the comparison with Dover Castle (another English Heritage site). Dover Castle is more expensive at £19.30 but you get a whole lot more for your money - castle, wartime tunnels, museums, sea views etc. I would guess the average visitor to Stonehenge probably spends around 30 minutes at the stones while the average visitor to Dover Castle spends at least 3 or 4 hours.  
       While the entry fee for Stonehenge took me by surprise, the economist in me can easily rationalize it. We just need to look at supply and demand. When we visited Stonehenge it was heaving with tourists, all willing to pay the going rate. Dover has a steady stream of visitors but demand is clearly less (particularly when you take into account that many visitors are members and so get in for free). High demand can explain the relatively high fee. But does it make it any less a rip-off?
         One of the few research articles that studies attitudes to 'fair' pricing is Fairness as a constraint on profit seeking by Kahneman, Knetsch and Thaler, published in 1986. Their basic finding was that people consider it unfair to raise price because of shifts in demand. One question that beautifully illustrates the point is 'A hardware store has been selling snow shovels for $15. The morning after a large snowstorm, the store raises the price to $20. Please rate this action as: Completely Fair, Acceptable, Unfair, Very Unfair.' 82% of respondents considered this unfair. 
        My perception of Stonehenge being a rip-off partly fits this picture of unfairness. It seems unfair to charge a high price purely because of high demand. There seems, however, to be an important difference. The person buying a snow shovel knows what they are buying. A visitor to Stonehenge, by contrast, probably has little idea what they are buying. And they may think the price will be a fair one. In other words, the visitor trusts English Heritage to not rip them off. So, while the person buying the snow shovel will feel hard done by when he sees the price, The visitor to Stonehenge would will feel hard done by after seeing what they got for their money. 
         Despite the pioneering work of Kahneman, Knetsch and Thaler there is still remarkably little work done on fairness in pricing. This seems a topic in serious need of more study. And let me finish by clarifying that I am not having a go at English Heritage. As a charity they have to make money where they can. And if £13.90 does seem like a rip-off then membership will let you visit Stonehenge, Dover Castle and more!  

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