Is Maximizing Number of Visitors to Increase Regional Economic Impact of an Event Sustainable in the Long Run? - An Analysis of Ticket Demand for the Peace & Love Music Festival in Sweden Patrik Arousell* and Tobias Heldt * * Department of Regional studies – Economics and Tourism , Dalarna University Paper presented at the symposium on Estimating the impacts of tourism and events, Centre for Tourism at the University of Gothenburg, March 20, 2014
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Is Maximizing Number of Visitors to Increase Regional ... · • All other consumption ... elasticity as the price elasticity of ticket demand to Peace & Love, ... Share of budget
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Is Maximizing Number of Visitors to Increase Regional Economic Impact of an Event Sustainable in the Long Run?
- An Analysis of Ticket Demand for the Peace & Love Music
Festival in Sweden Patrik Arousell* and Tobias Heldt*
* Department of Regional studies – Economics and Tourism , Dalarna
University
Paper presented at the symposium on Estimating the impacts of tourism and events, Centre for Tourism at the University of Gothenburg, March 20, 2014
The Basic Principle of the Study
Citation: (not) Cajsa Warg (1703-1769)
”We take what we have”
(The Fundamental Principle of Making a Meal)
Outline for the Presentation • What do we mean with sustainable? • Market, supply and demand conditions • Data, estimation and results • Consumer surplus and market equilibrium (given our estimates) • Conclusions
What do we mean with Sustainable? Entierely the Economic Perspective (and from a producers point of view) Monopoly Price: MR(q) = MC(q) Profit Maximisation Price: p = MC(q) Minimum Short Run Price: p = VC(q) Minimum Long Run Price: p = ATC(q) Min and Max Prices (long run): A price at least as high as in perfect competition and at most as high as in monopoly
Determinants for the Price Demand, Supply and Market Conditions Demand: Contingent upon the consumers preferences Supply: Contingent upon the production cost Market conditions: Contingent upon available substitues (perfect or imperfect)
Assumptions in the Analysis Market Conditions • Two commodities
• Peace & Love –festival visit • All other consumption (imperfect substitutes) (might be motivated by Hicks and Leontief´s Composite Commodity Theorem)
• (close substitutes [i.e. the 18 largest festivals in Sweden plus Roskilde] has been considered but estimation is invalidated due to the lack of data. But, it seems as Rockstad Falun is a complement to Peace & Love while Putte i Parken and Urkult are substitutes)
Assumptions in the Analysis (cont.) Supply • Parsimoniously treated • A cost function assumed as:
TC(q) = ∑αiqi
Assumptions in the Analysis (cont.) Demand Estimated by the Almost Ideal Demand System 𝑤𝑖 = ∑ 𝛼𝑘𝑛
𝑘=0 + ∑ 𝛾𝑖𝑖𝑙𝑙 𝑝𝑖𝑛𝑖=1 + 𝛽𝑖𝑙𝑙
𝑋𝑃∗
𝑙𝑙 𝑃∗ = ∑ 𝑤𝑖𝑙𝑙 𝑝𝑖𝑛
𝑖=1 where wi = Expenditure share on good i (Peace & Love), αk = Quantitative and binary variables, γij = Price effect by commodity j on commodity i, βi = Budget effect, X = Total expenditures
Data Derivation of Price for Tickets to Peace & Love Problem (related to Peace & Love): Cross sectional data set. No price variation over regions Assumption The price elasticity for transportation demand to Peace & Love has the same elasticity as the price elasticity of ticket demand to Peace & Love, i.e. εt = εp Condition for εt = εp
𝑝1𝑝2
=𝜕𝑞1𝜕𝑝2
𝜕𝑞1𝜕𝑝1
� where q1 = Demand for tickets, p1 = Price of tickets, p2 = Transportation cost
Assumed functional form for price: ln(pj) = ln(p1)+ln(p2)
Data (cont.) Derivation of Price for the Composite Commodity Index of price variation in homogenous basket of food within municipalities (yearly conducted by PRO) Motiviation • A Composit commodity can be constructed if the price of the commodies in
the basket are co-linear (i.e. Hicks-Leontieft’s Composite Commodity Theorem)
• Food prices correlates to a high degree with the price of (almost) all other commodities
Data (cont.) Share of budget spent on Peace & Love • Survey conducted by Högskolan Dalarna during Peace & Love
(from what region do the individual originate) • From the above survey, estimation of how many individuals
originiating from a particular municipality • Number of persons originating from a municipality, multiplied
by the municipality’s averaget income, divided by the regions total income, defines wi
Data (cont.) Intercept • Characteristics by municipality (age) • Binary variables for a single or a set of municipalities
• Single municipalities • Stockholm, Borlänge, Gagnef, Falun, Hedemora
• Set of municipalities • Fringe municipalities to the major cities, Fringe municipalities to Borlänge, Fringe
municipalities to the fringe municipalities of Borlänge, County residential cities
Data for Estimating Total Cost Function • Total cost according to the Annual Report from Peace & Love (5
observations, 2008-2012) (Sweden Rock Festival (2001-2013, 13 observations) show the same pattern)
Estimate of Cost Function Supply Definition of total cost function to be estimated ln TC(q) = α0ln(q) Implications No fixed cost Table 1. Estimation of Total Cost Function