Ski-Lift Pricing, with an Application to the Labor Market
NBER Working Paper No. 1985 (Also Reprint No. r1104)
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.
Published: "Ski-Lift Pricing, with Applications to Labor and Other Markets." From The American Economic Review, Vol. 77, No. 5, pp. 875-890, (December 1987).