The Economics of Theme Parks

I had the opportunity to complete a Keller Family Venture Grant on the economics of the theme parks industry. As a theme park enthusiast and an Economics major, I was immensely excited to apply my studies to an area of personal interest. This project analyzed the factors that influence investment, pricing, and marketing decisions made by amusement parks in the Orlando area. The amusement park industry in Orlando provided a prime case study due to the nature of the competition between parks and the presence of differential marketing strategies. The presence of three major amusement park chains in the Orlando area (SeaWorld, Disney, and Universal Studios) granted me the perfect opportunity to study the effects of oligopolistic competition on investment and pricing decisions made by Orlando theme parks.

In oligopolistic competition, there are only a few providers of a good or service in a certain market, and the lack of ‘perfect competition’ means that firms do not charge ‘market-level’ prices for consumer goods. However, different models of oligopolistic markets predict different outcomes and patterns of firm-level behavior between firms engaging in oligopolistic competition. One of the crucial goals of this project is to discover which, if any, of the pre-existing models for oligopolistic behavior can help explain investment decisions made by Orlando-area theme parks. Whereas many amusement parks in the United States hold monopolies over regional markets (with most major metropolitan areas possessing a sole, ‘flagship’ park), the Orlando market provides one of the few examples of oligopolistic competition within the amusement park industry. Hence, a primary goal of this research was to determine how and whether oligopolistic competition changes the investment decisions of Orlando parks compared to other parks. Two of the crucial questions are: do Orlando theme parks directly compete in ways predicted by oligopoly models, and does this competition lead to investment decisions that differ from parks that hold monopolies over their local markets?

To complete this research project, I traveled to the Orlando, Florida, area and visited the corporate offices for Disney, Universal Studios, and SeaWorld. Each of the corporate offices of these companies in the Orlando area is tasked with overseeing the day-to-day management of their respective theme parks and determining future investment decisions. I will interview members of each office to understand the reasoning behind investment and pricing decisions made by each park. I sought to understand how each firm’s pricing and investment decisions are impacted by the decisions made by competing parks in the surrounding region to determine the relevancy of existing oligopoly models to the theme park industry. Additionally, I met with representatives of each theme park to view first-hand the effects of different park investments, such as Jurassic Park and Star Wars attractions. The combination of interviews and site visits helped me understand the connection between different in-park features and the economic logic that underscores specific investment decisions.

Throughout my research, I found that the timing of investments appears to be correlated with major investments occurring in other parks. Though the effects of the COVID-19 pandemic distort parks’ investment timelines, we see a strong correlation in the timing of major investments made by different parks. 2021 and 2022 saw the opening of major attractions at multiple parks, and the differences in investment decisions made by each park illustrate patterns of product differentiation and IP use. Disney and Universal opted to add large capital investments themed to highly-lucrative franchises – Guardians of the Galaxy and Jurassic Park, respectively – with their respective new roller coasters Guardians of the Galaxy: Cosmic Rewind and Jurassic Park: Velocicoaster. Both were highly expensive rides (as it stands, Guardians of the Galaxy is the most expensive theme park attraction ever, with a price tag of $500 million), with detailed and extensive theming and unique ride elements like linear-synchronous motor launches and spinning ride cars. On the other hand, SeaWorld and Busch Gardens, without the benefit of lucrative franchises to market, resorted to record-breaking attractions to draw in customers. Busch Gardens Tampa debuted Iron Gwazi, which was marketed as ‘North America's tallest and world's fastest & steepest hybrid coaster’, and SeaWorld Orlando debuted Ice Breaker, which was marketed as ‘Florida’s steepest beyond vertical coaster’.

In addition, oligopolistic competition is evident in the pricing strategies employed by Florida theme parks. Despite the high costs associated with park operations and maintenance, the parks engage in aggressive price competition to capture a larger share of the consumer base. This strategic pricing is often accompanied by bundled offerings, seasonal promotions, and loyalty programs to incentivize repeat visits and increase customer retention. Though such offerings are not unusual for theme parks, the Florida parks offer a wider array of membership options, bundle packages, and special offers than many other parks that have monopolies over their respective geographic regions. While purchasing tickets, I noticed that Busch Gardens Tampa and SeaWorld Orlando offered a discounted ticket package that allowed customers to visit both parks for the price of a single park ticket. This strategy clearly demonstrated an instance of inter-firm cooperation, which can be a distinguishing feature of oligopolistic competition. Most of the parks also offer multi-day passes, which incentivize longer stays and encourage visitors to spend more time at a single park rather than explore other parks. Notably, the one-day ticket prices for SeaWorld Orlando and Busch Gardens Tampa – the two major Florida theme parks that do not feature widely-recognized intellectual property franchises – are lower than the one-day ticket prices for Disney and Universal, suggesting that the differentiation between products in the market has created a two-tiered equilibrium. Consumers are willing to pay more money to experience attractions themed to their favorite film franchises, which means that parks without such attractions are forced to lower their prices to a different equilibrium point.