Working Paper: NBER ID: w1985
Authors: robert j barro; paul m romer
Abstract: The market for ski runs or amusement rides often features lump-sum admission tickets with no explicit price per ride. Therefore, the equation of the demand for rides to the supply involves queues, which are systematically longer during peak periods, such as weekends. Moreover, the prices of admission tickets are much less responsive than the length of queues to variations in demand, even when these variations are predictable. We show that this method of pricing generates nearly efficient outcomes under plausible conditions. In particular, the existence of queues and the "stickiness" of prices do not necessarily mean that rides are allocated improperly or that firms choose inefficient levels of investment. We then draw an analogy between "ski-lift pricing" and the use of profit-sharing schemes in the labor market. Although firms face explicit marginal costs of labor that are sticky and less than workers' reservation wages, and although the pool of profits seems to create a common-property problem for workers, this method of pricing can approximate the competitive outcomes for employment and total labor compensation.
Keywords: ski lift pricing; labor market; profit-sharing schemes; price stickiness; efficient outcomes
JEL Codes: D61; D62; J30
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| ski lift pricing method (P22) | efficient outcomes in ride allocation (R41) |
| queues (C69) | efficient outcomes in ride allocation (R41) |
| competitive suppliers set prices (D41) | facilitate optimal investment levels (G31) |
| effective price per ride adjusts (R48) | variations in demand (J23) |
| fixed wages and rigid profit-sharing (J33) | efficient outcomes in labor market (J48) |
| competitive forces (L19) | induce efficient outcomes despite rigidities (D61) |
| profit-sharing rules adjustment (G35) | maintain competitive employment levels (J68) |