Ski-Lift Pricing, with an Application to the Labor Market
33 Pages Posted: 2 Jul 2004 Last revised: 6 Jun 2021
Date Written: July 1986
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.
Suggested Citation: Suggested Citation