Theories of Entrepreneurship and Management in the Creative Industries
Week 1
Pay as you Go: A New Proposal for Museum Pricing – Frey & Steiner (2010)
1. Pricing and Goals
Price may be no charge or voluntary
o Paid at entry but may also be imposed when exiting (price depending on
time spent, type of visitor / exhibition)
Museum pricing may be used for variety of different goals:
o Basic museum responsibilities
Noble (1970)
Collection (of cultural and natural objects; museums collect to
extent, consolidate or complete existing collections)
Conversation (to preserve objects from deterioration ->
prevention, conservation, restoration, appropriate treatments;
pricing of entry is connected to preservation)
Study (establish proof of origin of object or it will lose its value)
Exhibition (objects presented in permanent or special exhibitions
so it fulfills educational function)
Communication (various forms of communicating artistic content
(written captions, personal explanations, electronic tools);
different tools for different groups of visitors)
o Economic aspects
Pricing – one of the main determinants influencing economic
outcome of museums
Most museum receive public support, so economic performance is
of high interest for policy makers
Efficiency (scarce resources of a museum to produce as
much utility as possible, dominant & only goal considered
in standard neo-classical cultural economics
Possibility for differentiation (means of price
discrimination, specific groups can pay higher than others)
Financial revenue (enough revenue to cover costs of
location, collection, value of building; revenue depends of
price charges, income from museum shop, restaurants and
renting of museum facilities; corporate sponsors & private
patrons also part of it)
Profit (not the point but for private museums)
Donors (try to attract donors who can give money or
objects)
Museum as advertisement (case of sponsored museum,
goal is to attract visitors and publicity)
Spillover effect (firms and other institutions
Administrative cost (museums inherited from the past; kept
for existing so low cost wanted)
o Social or political aspects
, Main rationale for the public support of museums is existence of
positive external effects
Free admission to attract less educated social groups
Cultural involvement (pricing can make people who never
go come more of often or not at all)
Social considerations (low income be able to visit)
Education value (foster creativity or designed to generate
ides for commercial activities)
Number of visitors (increase publicity, donors)
Prestige value (generated by museum for nation, region, or
local community, best known museums are represented
culture and country)
Generate attention
None of the goals work without the other
Differ per museum
Study the charging principles of museums but focus on free entry supplemented
by exit donations
2. Free Entry Reconsidered
Free entry is granted into world heritage cities but badly overcrowded (Florence,
Bern, Bruges or Venice)
Important advantages of free admissions:
o “social” (poor people also gain access)
o Draw new groups in the cultural experience of museum visits
o Raises numbers of visitors
o Cost of administration may be lower
o With zero admission, higher incentive to make donations
Museums do not measure opportunity costs of their collections, do not include
value of their collections into account
Assumption of zero marginal cost can be doubted for various reasons
o Only in short run, marginal cost of additional visitors to institutions
operating below full capacity is zero
o Congestions costs might be significant in highly visited museums
Free entry disadvantages:
o Overcrowded
To avoid, reservations are made in advance
Entry is costly for visitor, but museum does not get any revenue
o Additional visitors attracted by free entry is not enough to offset loss of
admission receipts
Prieto Reodríguez et al. (2006) two income sources for a museum
o Public grants & tickets revenues
Exit Donations
Voluntary contribution might increase revenue so important to confront visitors
with this option
Payments can be made according to willingness and ability to pay
The more satisfied with museum, the more prepared to spend
, o more choice available & wanting to spend more in museum shop and
restaurant
asking for an exit donation may raise a museum’s international, regional, local
prestige as it shows measure of sovereignty
exit donation more efficient than free entry (produces more financial resources
for the museum)
3. Entry Charge
- Cultural economics based on neoclassical economics’ goal for museums is to allocate
resources as efficiently as possible (i.e., maximize net utility produced for society)
o Visitors should pay that demand for visiting equal’s supply
Not easy because utility depends on number of visitors
Quality of visit is less when overcrowding, queuing, noise and inability
to see objects on display occur
o Price differentiation is efficient when
1. Demand is low and far from full capacity -> price close to zero, when
more people than capacity -> price raised to ration demand (ensures
individuals with highest willingness to pay are able to enjoy museum)
2. People with low price elasticity of demand charged higher price;
having two separate entry points into museum (one higher price,
shorter waiting, lower price longer waiting)
3. Price varies if its normal collection or special collection
o May charge locals less than foreign tourists (locals contribute to funding
through taxes)
No conflict between goals of efficiency and cultural involvement of the
local population
o Price elasticity for cultural demand normally is estimated to be rather low
Ticket prices are not best explanation for demand
o While introducing charges reduces number of visits, but might be
compensated by duration of visits
o Frequent suggestions
Levy an admission charge only for extra services or use revenue
created to make museum more attractive (where additional revenues
raised by charges are used to improve standard of service, number of
visitors tends to increase)
If no substitute to the museum is available, consumers have a
relatively low price elasticity of demand for attendance
o quality is an important determinant of cultural demand
o advantages of pricing according to neoclassical principles
produces efficient allocation of scarce resources of museums
cost includes deterioration in quality for objects due to large numbers
of visitors
o efficiency approach is confronted with various problems
doesn’t consider distributional aspects, attracting new groups,
benefits of spillover effects
o if revenue created by admission charges is used to improve quality or provide
extra services, possible to attract a larger audience
, Museum Clubs
- variant of charging entry fees is the club solution
- contribution may differ according to people who are locals, tourist, income,
estimated price elasticity of demand, whether price varies with respect to how far
the capacity of the museum is used
- can be efficient pricing to a high degree, take time for other goals
- not conducive to raising involvement of people who rarely visit museums
- encourage repeat visits
4. Evaluations of Pricing as Rationing Device
- Price differentiations according to elasticities / a rationing device do contribute to
efficiency, not commonly used though
- Due to:
o 1. Lack of information (modern economic knowledge is not widely known and
lack of it is chosen to avoid loss of educational capital in own field of
education)
o 2. Conflict over income distribution (interest groups who expect to loss in the
distributional struggle, block the use of price)
Case of museums free entry is usually proposed by higher socio-
economic classes which benefit from it the most
o 3. Pricing is considered unfair
Traditional procedure
A fixed rule is applied irrespective of excess demand (not seem
a priori to be particularly fair)
Random allocation
Each person treated equally, does not take needs of a person
into consideration
Distribution by a selected group of people
Government (bound to democratic rules and allocates
resources according to administrative principles)
- Subjective evaluation of fairness depends on whether the situation of excess demand
is unique and unpredictable or recurrent and to be expected
- Discounts for students, etc.
5. Exit Price
- Application of exit prices
- The longer spent in the museum, the more you pay
- Marginal admission rice can be constant or decreased over time
o Decreasing rates induce longer visit, since average cost per minute are
decreasing
o People are more satisfied
o Willing to spend more money on shop & restaurant
o Price system is less unfair than entry price
- Introduction might be a good advertisement for museum due to media coverage of
innovative pricing scheme
- Possible extension of exit price mechanism is refund at the end of the visit
o If you stay less than certain amount of time, you get money back
o Visitors pay according to their satisfaction
