Economist's Notebook: Price Elasticity of Demand

We make trips to visit my mother on Bainbridge Island fairly frequently and we take the ferry whenever we can as we much prefer it to the overland route.  A couple of weeks ago my older son and I were taking the ferry after walking over from the train station and while on the ferry we saw the familiar video game console that always catches my son's eye.

This summer it is the retro Pac Man/Galaga combo machine (which led to a good conversation about the state of video gaming when I was his age - the modern version of having to walk 3 miles in the snow which, by the way I also had to do!).  But over the course of a week on Bainbridge we actually took the ferry over a number of times (once to see the King Tut exhibition which is great but incredibly anti-climactic at the end) and we noticed something interesting: no one ever plays the game.  To me this was unsurprising, the price per play was $1 - a sum which my son (and I) thought outrageous.  Now as an economist and a father, there is never a bad opportunity for some teaching so I asked my son if he though they should price it low enough so that the game was constantly played on each trip (10¢ say) if the goal was to maximize revenue.  He said maybe not - good boy, he remembers my lesson of the un-full parking lot!  [To wit: if you see a downtown parking lot less than full in the middle of a business day, can you assume the parking lot owner made a pricing mistake? No.]

But certainly they have mucked this one up.  $1 is so expensive that it almost never gets played.  Compare that to the marginal cost of punters playing it (close to zero) and you understand that the ferry (or the vendor of the machine) have miscalculated the price elasticity badly.  

So I have a suggestion: price it as 25¢ and compare profis. I think you'll find you do better.