South-Western College Publishing - Economics  
Yes, Virginia, There Is a Santa Claus—Now at Wal-Mart!!
Subject Discount stores are ratcheting up their competition with traditional department stores by employing people to pose as Santa Claus during the holiday shopping season.
Topic Monopolistic Competition
Key Words Competition, Price
News Story

Santa Claus is coming to Wal-Mart, and kids can get their pictures taken with him for free, (although the rumor is that three Santas will be shrink-wrapped together for even better value.) This is a move the chain is hoping will draw additional customers to its almost 3,000 stores in the US over this holiday shopping season.

Competition is getting fierce for shopping time and dollars, and discount stores are beginning to hire Santas to compete with the traditional department store Santas. Based on consumer research, 84% of consumers intend to shop this season at a discount store, while only 28% say they will go to a department store. Since they're already going to be at a discount store with their family, the logic implies, why not keep them there for the picture with Santa? Further, the fact that the picture taken with Santa is free at Wal-Mart, will help the stores compete with department stores, who typically charge $12-$45 for a picture. Of course, you can also bring your own camera with you (or buy one at Wal-Mart and then use it to take the picture with Santa).

Other stores are finding more novel approaches as well. Some stores allow children to have their pictures taken with live reindeer; others are implementing a pager system, similar to those used in restaurants. Families can go shopping while virtually waiting in line for that picture with Santa.

(Updated January, 2004)

Questions
1.

What is Wal-Mart assuming about the relative elasticity of demand for pictures with Santa? Why?

2. How will this inclusion of Santa Claus at its stores affect demand and marginal revenue for Wal-Mart?
3. Under what conditions would offering a free picture with Santa be profitable for Wal-Mart? Explain carefully.
Source Shirley Leung, "Now in Aisle 5: Santa Claus," The Wall Street Journal, 1 December 2003.

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