Are Theme Park Rides a Giffen Good?

It is canonical among economists that as the price of a good rises, the quantity demanded of that good falls (other factors held equal).

The underlying logic is that a higher price for a certain good has two effects. The “substitution effect” is that a higher price for a certain good causes potential buyers to shift at least some of their buying to substitutes. The “income effect” is that the if the price of a certain good rises, the overall buying power of one’s income is reduced, which tends to lead to a reduction in consumption of all “normal goods” that a person buys. Indeed, the economic definition of a “normal good” is a good where more is consumed as income rises: this is in contrast to an “inferior good,” where less is consumed as income rises. A standard example is that steak may be a “normal good,” while hamburger is an “inferior good:” as income rises, a typical household consumes more steak and less hamburger.

But there is a well-recognized theoretical exception to this rule, known as a “Giffen good.” Imagine a very “inferior” good. When the price of that good rises, the substitution effect provides an incentive to shift to other substitute goods. However, for an inferior good, when the higher price leads to reduced buying power, people with effectively lower incomes buy more of the good. If there aren’t many (or any) possible substitutes for the good, and the inferior good effect is strong, a higher price can lead to people buying more of the good.

As a real-world example, consider the situation of a low-income household where a single food item plays a large role in their near-subsistence diet: the example I grew up hearing in classrooms was the role of potatoes in the diet of of poor people in Ireland in the 19th century. Say the price of potatoes rises, because of some external factor like a bad harvest, but that even after this price increase, potatoes remain the cheapest source of calories in a basic diet. In this situation, the poor do not have a cheaper food product to which they can substitute. Moreover, a price increase for a staple food product that is a big part of overall household spending means that the buying power of family income is diminished, and potatoes are an “inferior good.” Thus, poor people in this situation react to a higher price of potatoes by purchasing a greater quantity.

This situation of a Giffen good–a food staple that does not have easy substitutes, but is an “inferior good” making up a large share of purchases of low-income households– is obviously rare. Francis Ysidro Edgeworth described Giffen goods in this way in 1914: `Only a very clever man would discover that exceptional case; only a very foolish man would take it as the basis of a rule for general practice.`” Indeed, I’m not aware of clear empirical evidence that the Giffen good argument applied to low-income Irish households eating potatoes in the 19th century. But there is some modern evidence that for low-income households in a particular location in China, rice was a Giffen good.

Garth Heutel offers the possibility of a completely different example in “Theme park rides are Giffen goods” (Southern Economic Journal, published online September 17, 2024). His argument requires a shift of perspectives fancy footwork. He focuses on a particular context, in which people pay an admission fee to enter an amusement park, but then do not pay an additional fee for the rides. In this context, given that you have already paid for admission, the “price” of a ride is the time that you wait in line. In addition, you go into the park knowing that there will be lines, especially at the most popular rides. Thus, Heutel argues, a “higher price” in this context is a situation in which, after entering the park, you find that the lines for a given ride are longer than you expected.

Here’s a simplified example from Heutel to provide some intuition:

Consider a theme park with just two rides: a high-demand ride with a long wait, like a roller coaster, and a low-demand ride with a short wait, like a carousel. A guest has made a touring plan based on the expected wait times for the rides – 15 min for the carousel and 120 min for the roller coaster – and on the total time spent in the park of 7 h. Given that budget constraint, the guest chooses three rides on the roller coaster (6 h) and four rides on the carousel (1 h). …

When the guest arrives in the park, she finds an unexpected increase in the wait time for the carousel, increased from 15 to 30 min. How does she change her behavior? One option … would be to maintain her three rides on the roller coaster, leaving her just enough time (1 h) for two rides on the carousel instead of four. This would reduce the total number of rides from seven to five. An alternate option … is to ride one fewer ride on the roller coaster (two instead of three), leaving her an extra 2 h to ride the carousel, which would allow her six rides instead of the original four on the carousel. This would increase the total number of rides from seven to eight. This option amounts to Giffen behavior in her demand for the carousel; the price (wait time) increased, and her quantity demanded increased. The Giffen option is more likely to be chosen if the guest has some minimum total number of rides that she would like to achieve, similar to subsistence demand.

Heutel offers data and theory to argue that this simplified example is as plausible representation of reality. I can’t do justice to the complexities of the analysis here, but here’s an overview:

I use a unique proprietary data set, which contains observations from several hundred guests of several major theme parks in California and Florida. Each guest has at least one “touring plan,” which is an itinerary of planned rides that the guest would like to do in the park. For each ride in the plan, I observe the ex-ante expected wait time, the actual wait time once the guest arrives at the ride, and the decision over whether the guest rode it. The key empirical test is the effect that the actual wait time, or the deviation between the actual and expected wait times, has on the probability of riding the ride. … The law of demand says that a higher wait time should cause a decrease in the probability of riding; Giffen behavior suggests the opposite. …

I find statistically significant evidence of Giffen behavior among theme park guests. On average, a 10-min increase in the difference between the actual wait time of a ride and its ex-ante expected wait time increases the probability of riding it by about three to five percentage points. This relationship holds under a variety of specifications and different controls, including controlling for weather, for overall park wait times, and for a set of user, ride, date, and time-of-day fixed effects. While true on average across all rides, I find that the effect predominantly arises from the rides that are the least desirable, that is, not the headliner rides like roller
coasters. These rides are more likely to be inferior goods and thus more likely to exhibit Giffen behavior. I show that the Giffen effect is larger in theme parks with a smaller number of substitute rides, consistent with the theory.

For me, it requires some mental exertion to think about the “subsistence” problem of those attending theme parks, in terms of the limited time they have in their day, as compared to the “subsistence” problem of impoverished Chinese people with a diet heavily dependent on rice. But of course, the very different context is what makes the example worth passing along.