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To Charge Or Not To Charge
Subject Tourism
Topic Profit Maximization and the Firm
Key Words Price, Profit Maximization, Shut Down Case, Short-run, Long-run
News Story

Many firms in the tourism industry have resorted to price discounting in an effort to gain more customers. At a recent meeting of the industry, in Cape Canaveral Florida, an industry expert warned against such deep discounts. Barry Pitegoff is vice president of research for an organization called Visit Florida. He warned industry leaders about the consequences of continuously lowering prices in an effort to attract more business. The final result, Pitegoff said, is for tourism destinations to discount themselves out of business.

The real danger in the deep discounting is that consumers will get use to the low prices and demand nothing less on future trips. Pitegoff believes that the large discounts currently used by some companies "…condition people to think: I'll wait until the last minute because there could be a better deal." Prices that come down are not always so easy to increase when market conditions improve. Actually, market conditions are not expected to improve soon. In fact, he predicted tourism revenues would essentially remain flat over the next six months to a year.

Pitegoff's solution is not to lower prices, but to increase demand. He suggests that Florida Tourism Industry should sell the world on its beaches, unique communities, and its ecology. He further suggested that communities make an effort to retain their uniqueness and avoid becoming "Generica." Generica is a term meaning landscape features, such as strip malls, pre-fab housing and streets are identical regardless of what part of the country you visit. For tourism marketers to be successful they must avoid this trend toward "likeness" and promote the unique attributes of the area.

(Updated June 2, 2003)

Questions
1.

If demand for tourism were elastic, how would you expect the lower price to change revenue?

2. What cost and revenue comparisons would lead a tourism firm to shut down?
3. What is the profit-maximizing rule for any firm?
Source Wayne T. Price, "Official Warns Venues Against Deep Discounts," Florida Today, May 9, 2003.

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