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 (Citation1984) and Walsh et al. (Citation1983) 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 (Citation1987). Empirical work includes Sutton (Citation1991), Berry and Waldfogel (Citation2010), Dick (Citation2007) and Ellickson (Citation2007).
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 (Citation2003) 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 qW > qL . 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 Citation1980 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.