Frats are typically overlooked as merely being venues for drunk teenagers to convene, but what’s their hidden genius economics exploits?
We’ve all been there. A supersized, urine-smelling townhouse on St. George Street promising free beer, great music and fun times. It’s only after we’ve paid the fee, rushed inside, and peered around the dilapidated, sweaty frat fortress that we begin to rethink our decision.
Occasionally, though, you get what you pay for. You emerge, dazed and confused, at 1:00 am feeling satisfied with your $10 investment.
The fiscal policies of, say, Sigma Phi Delta or Kappa Gamma Pi are rarely if ever, discussed. But behind the ostensibly arbitrary ticket prices is actually a very prudent economic strategy of frat parties
1. Determining elasticity of demand
Frat houses spend most of their money on things that are fixed. The red solo cups, kegs of beer, and sometimes the DJs are all bought beforehand. These costs do not change whether the frat is empty or if it is a full house. But what separates a full house from an empty one? A shrewd economic concept called price discrimination. This entails charging different customers different rates for the same service.
The rate depends on an individual’s willingness to go to a frat. People who are willing to pay a lot are called inelastic demanders. Customers who aren’t willing to pay a lot are called elastic demanders. By identifying and separating these two groups, frats charge more to inelastic demanders and attract otherwise unwilling elastic demanders by charging them lower prices. This increases profits for them substantially.
2. Time is money
Consider this: why is it $5 before 10:30 and $10 afterward? Simply because fewer people are willing to go before 10:30. There is less demand before 10:30. Prospective frat-goers may still be studying, getting ready, or simply recognize the fact that other students don’t get there till later, so it won’t be as fun.
Frats realize this, and consequently employ price discrimination, lowering prices. They don’t want everyone coming at 11:00. Lines swell, people getting impatient, they move on to another frat. Also, if they’re paying a DJ or bouncer by the hour, they are losing money.
It’s the same reason why movies are cheaper on Tuesday. That is the least busy day of the week, so to reconcile their fixed costs and turn a profit, movie theaters must lower their prices in accordance with peoples’ levels of demand.
3. Creepy guy compensation, or why girls pay less
Utilizing time-based price discrimination is effective, but to further increase profits frats isolate another variable: gender.
In the same way that seniors and students are less willing to go to movies and thus receive reduced ticket prices (“Student/Senior Discount”), girls are generally less willing to go to frats.
So, they too receive reduced ticket prices. If frats charged the same price for girls as they did for guys – $10 to $20 – then it would be predominantly guys. In other words, girls are elastic consumers.
There are rumors of some frats even raising prices as the temperature drops, realizing that people will be willing to pay more to get inside. Coca Cola tried a similar temperature-based initiative a few years ago. Their vending machines had mechanisms inside to assess how hot it was outside. As the weather got hotter, the price of a thirst-quenching Coke increased. Consumers were outraged and the company promptly abandoned the idea. However, all they were doing is implementing price discrimination.
The traditional frat bro stereotype is a thick-headed, thin-skinned mouth breather, shotgunning a Keith’s with one hand and punching a hole in the wall with the other. This spurious stereotype should be re-evaluated. Indeed, Adam Smith and John Maynard Keynes alike would marvel at the understated genius that these young men display on a weekly basis.