Market size, service quality and competition in the US downhill ski industry

Abstract

Using a two-sector model of congestion, I explain theoretically how lower travel costs and increased consumer income over time resulted in endogenous investment in quality and higher real prices at both national and local ski resorts despite limited market entry. I also provide empirical evidence for the US ski industry in support of the implications of the model.

Notes

¹Morey (1984) and Walsh et al. (1983) provided evidence from surveys of skiers' willingness to pay for shorter lift lines and less congestion on the slope.

²For seminal work on the Endogenous Fixed Costs (EFC) approach, see Shaked and Sutton (1987). Empirical work includes Sutton (1991), Berry and Waldfogel (2010), Dick (2007) and Ellickson (2007).

³This assumption is made for expositional purposes. More generally, skiers could be assumed to ski at different times during the season and at different ski areas distributing themselves across the year and across ski areas to minimize the congestion costs imposed by other skiers.

⁴As a result, I ignore the off-peak time in local markets, which is used primarily by season ticket holders.

⁵See Mulligan and Llinares (2003) for an elaboration of this point.

⁶The model thus incorporates the fact that the number of skier days per season has remained essentially unchanged since 1980 despite the large increase in lift capacity.

⁷As specified, the model assumes that at t equal to 0, and q^W > q^L .  In other words, at time period t equal to 0, national ski areas already provide higher quality due to a greater number of runs per skier per day.

⁸The assumption of an elastic demand for ski runs implies that ∂Φ(q)/∂q > 0 at the equilibrium number of runs per day.

⁹Although most resorts collect data on skier days, few owners and state ski associations are willing to reveal this information for legal reasons.

¹⁰Ski resort-specific data are from the 1980 and 2002 editions of Enzel's The White Book of Ski Areas and individual resort websites. Information on skier days for the year 2002–2003 are from state trade associations.