Skip to main content

2009-06-23 | project

The optimal pricing of national parks with nationality-based price discrimination and park substitution

Nature based tourism is a popular and rapidly growing industry in South Africa. Developing nations are finding it useful to use their natural resources in order to create competitive advantage over the developed world.

Unlike other tourist activities run by the private sector, prices for nature based tourism in the form of national parks and protected areas are set by the state or a body controlled by the state. In the private sector prices respond very quickly to market forces in order to maximize efficiency and therefore provide the highest profits for local providers. In state run nature based tourism, however, prices are mostly set independently from market considerations. The result of this is that it is common for nature based parks to set their prices low, especially for foreigners. Such low fees are largely not a problem in first world nations due to high government subsidies.

In Africa and many developing states, however, there is an increasing trend to phase out tax-based grants to national parks. This places even more pressure on the parks to use their pricing in such a way that will cover their costs. The pricing of national parks is also very important for at least two other reasons: firstly, it can be used to manage congestion across the national parks and secondly, it can be used to smooth seasonality in park visitation. Considering these issues, the South African National Parks (SANParks) has implemented a price discriminating policy but in a fairly complicated and unoptimized way. Entrance to national parks and protected areas is divided into two costs; a usage fee and a conservation fee. All entrants have to pay the same usage fee which is often set to zero and recovered through accommodation or activity prices. The conservation fee in most parks is different according to whether you are a South African national, a SADC national, or other foreign national. In light of the upcoming World Cup in 2010, the primary initial pricing objectives might be to raise revenues from the large number of visitors who are expected to grace South African national parks and to also redirect tourist traffic from those national parks that are prone to congestion.

This study seeks to provide the framework that could be used by SANParks in determining the optimal pricing of national parks in South Africa taking into account their substitutability and the need for price discrimination for revenue maximisation purposes. This study builds on the work of Wilman (1988) and Alpizar (2006). A model which allows for differential pricing of visitors and national parks will be formulated. Of course, the optimal pricing rules in Wilman (1988) and Alpizar (2006) are already extremely complicated and adding cross price elasticities to the picture will likely increase the complexity of the formulas exponentially. The study intends to use computer software such as Mathematica to solve for such formulas. Information about cross-price elasticities will be extracted and entrance fees could be used to drive visitors away from those national parks that are prone to congestion.