February 11, 2004

Long Lines and Cleared Markets

Good advice from Thomas DiLorenzo to all economists who study pricing practices:

It is sometimes said that long lines at theaters, sports events, and amusement parks are signs of a market that is not clearing and that prices should be raised. In fact, people pay in a combination of money and time costs, that's all. With a moderate-income clientele it makes sense for some people to ration by waiting rather than by cash. These are the low opportunity cost customers.

(...)

It is always more useful to think of profit-maximizing rationales for pricing practices that persist for long periods of time instead of falling into the "market failure" trap. Businesses that price in such a way year in and year out, and are profitable because of it, are not likely to be doing it because they are stupid.