There’s No Price Gouging at Winter Beaches

Every summer, there is a phrase we hear again: “rip-off pricing.” It refers to absurdly high charges at beaches and vacation spots where large crowds gather. Then the authorities step in, declaring that they will eradicate such rip-off pricing. Yet we never hear that it has actually been eradicated, and the story of “rip-off pricing” returns year after year. This year was no exception. Most likely, we will still be hearing the same thing 10 years from now, 20 years from now, and even beyond, along with the same official threats.

But you have probably never heard anyone talk about rip-off pricing at a beach in winter, when cold winds blow and temperatures fall below zero. Rather than overcharging, prices are often heavily discounted.

Anyone with even a basic understanding of markets and prices would regard this as natural and normal. Prices are not determined “absurdly”; the principle that they are determined by supply and demand is a law found in any economics textbook. Of course, having “studied” something does not necessarily mean one has a solid understanding of market and pricing principles. A survey conducted several years ago by a research institute suggests exactly that.

According to the survey, only about 20% of Koreans believe that prices are determined by supply and demand. The largest share, 44%, said suppliers determine prices, while 17% said production costs determine prices. Interestingly, when broken down by occupation, the proportion responding that suppliers determine prices was highest among public officials and employees of large corporations, at 54% and 51%, respectively. These are the very people one would assume to be “highly educated,” yet their understanding of the market economy turned out to be even lower.

Whatever the cause of this poor understanding of the market economy and the principles of price determination, the problem is that such attitudes encourage state price controls. One reason government regulation of the prices of various goods and services is so widespread in Korea today can likely be found here. Put simply, if ramyeon prices are deemed too high, the government appoints a “ramyeon bureaucrat” to step in and control them. And if a certain sector is seen as making large profits, government officials and politicians promptly move to regulate it.

This time, golf courses—especially public golf courses—have been caught in their “radar net.” A bill is reportedly being pushed to regulate green fees by imposing a price ceiling. Complaints about golf courses can be summarized as follows: because people could not travel abroad during COVID-19, demand for domestic golf courses exploded; golf courses then sharply raised green fees; and once raised so dramatically, those fees have shown no sign of falling. Meanwhile, service quality at golf courses deteriorated badly. Golfers were made to play on greens scorched by the summer heat, with bare ground exposed, and on fairways where the grass had died and dirt showed through—so-called “sand floors.” Yet despite operating this way, public golf course profits have surged sharply over the past several years. On this issue, one public broadcaster offered the following Editorial: “It seems to be time for some public golf courses, which are treating customers like suckers and displaying predatory behavior, to reflect on themselves.”

As with most regulations, both the member of the National Assembly advocating a green fee price ceiling and the public broadcaster’s report seem to show a very poor understanding of how prices are determined. Above all, they completely ignore the demand side and consumers themselves. At the height of COVID-19, golf course websites frequently crashed on reservation days as applicants flooded in. Demand exploded to that extent, so it was only natural that prices rose. The public broadcaster directly witnessed the reason prices were high, yet failed to connect it to price formation. It reported that “even though the highest weekday daytime green fee reached 240,000 won, amateur golfers continued to flock in,” while at the same time denouncing the courses for “treating customers like suckers and showing predatory behavior.” If golfers keep flocking in, why would that golf course have any reason to lower its prices?

The prevailing view is that golf course green fees will soon fall. But if that happens, it will not be because of a price ceiling bill in the National Assembly, nor because a public broadcaster scolded them. The reason is already stated in the broadcaster’s own report, in the words of one golfer it interviewed: “I’ve been coming here for almost 8 or 9 years, and this is the worst mess ever.... In my view, people shouldn’t come here. I’m not going to come anymore either.” In fact, amateur golfers had long been saying that once COVID-19 ended and overseas golf travel increased, golf course green fees would fall. Whether people turn away because the service quality at domestic golf courses is terrible relative to the price, or because overseas golf is cheaper, once consumers start shunning them and demand declines, golf course green fees will naturally come down.

Hyukchul Kwon, Director of the Free Market Institute

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Original title: 겨울 해수욕장에는 ‘바가지요금’이 없다

Author: Hyeok-cheol Kwon

Date: 2024-10-10

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=column&pn=2&idx=26904