TREATMENT OF TRAVEL
EXPENSES BY GOLF
COURSE PATRONS
Sunk vs.
Bundled Costs
&
The First &
Third Laws of
Demand
Kelsey Conway
OVERVIEW
 Do Golfers treat travel costs as bundled costs (third law of
economic demand)? Or do golfers treat travel costs as sunk
costs (first law of economic demand )?
 Used Ohio golf courses for the study
 Locals vs. Tourists
 Golf Tourists spent $321 million (out of a total of $2.7 billion) in
2002 – apprx. 9.3% of all golf rounds played in Ohio
 Af fected by price, course type, style, location and number of
holes, etc.
RELATIVE COST
 Alchian- Allen Theorem: As a fixed cost is added to the price of
two products, the more expensive product becomes cheaper
relative to the less expensive product
 Average Vacation vs. Great Vacation
 Course A (Average) = $50
 Course B (Great) = $100
 Local would pay 100% more to play Course B
 Tourist who is paying $200 in travel/lodging costs, only pays 20% more to
play Course B
 $250 vs. $300
 The relative cost of playing Course B as compared to Course A
is much less for the tourist
SUNK COSTS VS. BUNDLED COSTS
 If travel is considered a sunk cost – the cost of travel adds no
value to the products being of fered (golf) – therefore, the
decision on which golf course to play is separate from their
travel decisions (consumer theory)
 Play Course A twice & Course B twice
 If travel is considered a bundled cost – the cost of the travel
and the cost of the golf are together
 Play Course B more than Course A
 Vacations vs. individual purchases
 Customers who bundle are more likely to play Course B compared to
those who treat travel as a sunk cost
 As the bundled travel cost increases, the relative cost of the high -end
golf course decreases
STUDY
 Which law of demand will apply?
 First Law – more spent on travel, less spent on golf
 Third Law – more spent on travel, more spent on golf
 Result: Most golfers, especially golf tourists, bundle the quality
costs with the intermediate costs of travel, lodging & food
 Strong positive correlation between distance traveled and greens fee,
greens & cart fee, total spend on course and total trip spending
WHAT DOES THIS MEAN?
 Golf Course Managers should utilize geographic segmentation
in marketing plan
 High Greens Fees – advertise in golf/travel magazines
 Low Greens Fees – target local consumers through newspaper, etc.
 Examples
 PGA Championship – tickets vs. corporate hospitality
 Met Golfer Magazine