The Economic Environment of Museums - Case Study Example

?The Market for Education: Museums Table of Contents Table of Contents 2 Introduction 3 Museum visits 4 Museum visits’ demographic demand pattern 5 Shifts in demand and supply market 5 Price elasticity for various demographic groups 7 Market failures 7 Government interventions 8 Recommendations for the government 11 Conclusion 12 Reference List 13 Introduction Johnson and Thomas (2008, p. 75) define museum as “an institution where objects of historical, scientific, cultural significance and artifacts are exhibited and stored”. Museums relay several essential roles in the art world. Visits to museums are becoming a crucial holiday and leisure activity. Most museums around the world are charging entrance fees as it is the norm. This follows after several attempts by nations like Germany, France, Sweden, and Salvador tried free admission, but the project failed. Unlike other nations which have faltered in the free entry of museums, the United Kingdom (UK) has excelled in the last 10 years. The government use free admission as part of the government plan to broaden accessibility of the country’s heritage and culture. Free admission has been found to immensely increase the visitors’ numbers who visit the museums. UK’s culture Secretary Chris Smith argued that free admission would mark a new beginning for the arts and cultural life of this country. This has opened gates for the people who are entering the museums. Consequently, free entry has been the key to attracting people from all ages and across the divide. In the US entrance to the museums has long been free, but there are certain private museums that have exorbitantly high charges and people still pay. This shows citizens are not discouraged by charges if the destination is good. Free entry has altered the image of museums because venues are staging a broader variety of exhibitions so as to bring in new people. However, the problem still remains that it can prove to be a challenge where the state’s funds are stretched to the limit. Consequently, most nations have made entry to museums chargeable. As noted by (Silito, 2011) some museums in Britain still charge including Cabinet War Rooms, Imperial War and Tate St. Ives. Discussion Museum visits Museums take various organizational forms. Museums are private non-profit organization, private profit firms, or public organizations operated in a non-profit manner. Johnson and Thomas (2008, p. 78) point out that non-profit organizations were established as result of satisfied demand for public goods. Museums’ cost structure is also responsible for establishment of non-profit firms. According to Frey and Meier (2006, pp.1020-21) assert that museums have two types of demand: private and public demand. Private demand is exerted by visitors who visit the museum as a leisure activity or as part of their profession. The core determinants relating to price or costs include, (1) admission fee; the demand for museum services are price inelastic (2) opportunity cost of time; individuals who are self employed or with higher income have a higher opportunity cost of time, compared to low income persons or with fixed working hours, thus are expected to visit museums more often (3) Price of alternative activities. The social demand influences the society beyond the experiences of the actual museum visitors themselves. The social effects include externalities and influence on the market. The external effects include: education, prestige, existence and bequest values (pp.1023). The market effects include creating job opportunities and generating commercial revenue (pp.1024). In addition, museums differ from other organizations in the services due to the following determinants: high fixed costs, the marginal costs are close to zero, are characterized with dynamic costs, and high opportunity costs. With regard to high opportunity cost Frey and Meier (2006, p. 1028) argue that museums understate their true capital costs by not taking into consideration the opportunity costs. Museum visits’ demographic demand pattern With the introduction of free visits, the number of visitors to museums has soured across the board. Free admission as noted by Youngs (2011) is key to attracting a wider audience, and thus a broad variety of exhibition pulls individuals across all age and class divides. The free admission has led attracted new persons to these institutions. Members of the middle class are visiting more often. A survey carried out by Mori found out that there was an upsurge in visitors also from the lower social classes, but the balance has greatly remained the same among all other groups. Programmes are being put in place so as to encourage the black minority and ethnic groups to visit the museum (Frey & Meier, 2006). However, the profile of the characteristic ‘population’ of gallery or museums visitors has remained relatively stable and firmly inclined in favor of the traditional visitor groups; adults and children from high income families. British museums and art galleries that allow for free admission include Natural History Museum, Victoria and Albert Museum and Merseyside Maritime Museum. The Tate Museums tops the league with a total of 7.5 million visitors. Furthermore, there were 5.9 million visitors to the British Museum with 60 percent of them being foreign tourists (Youngs, 2011). Shifts in demand and supply market According to a view expressed by Frey and Meier (2006, pp.) found out that museums are shaped by supply and demand and the institutional setting limiting the decision makers in the museum. They assert that institutional factors such as whether a museum is public or private, greatly affect the manner in which the museum is run with regard to price setting, management of the collection, or the focus on commercial activities thus influencing the demand and supply market. An increase in supply increases quantity and lowers the price level. An increase in demand lowers quantity and increases the price level. The quantity increases but the final effect on price relies on what shit was greater. As a consequence, the equilibrium quantity is reduced, whilst the influence on the price is reliant on the degree of shifts and relative slopes of demand and supply curve. Figure 1 below shows shift in demand and supply. Figure 1: Shift in Demand and Supply (Youngs, 2011). If the government is cash strapped to upgrade its museums and visitors have less money, this would cause a negative supply shock causing the supply curve to shift to the left. Therefore, the shift in supply causes movement along the demand curve. The new equilibrium has lower quantity and higher price. Summarily: as demand and supply increase, price is indeterminate and quantity will increase; demand and supply decrease, price is indeterminate and quantity will decrease; demand increases and supply decreases, price will escalate and quantity is indeterminate; demand decreases and supply increases, quantity is indeterminate and price will decrease. Price elasticity for various demographic groups Most museums are characterized by a demand curve that lies below the average cost curve. The traditional museum population and the high income earners are characterized by lower price elasticity of demand. Given a price increase, it is perceived to be relatively small and does not have much significance on the demand. However, the low income earners, minority groups and those who work fixed schedules have high price elasticity of demand. Any increase or decrease in price would greatly affect their demand. With regard to own price-elasticity, before a change in price in entrance charges, there are an approximated 8 million visitors generating revenue of $ 1.6 million. After lowering the price of in entrance charges, the museums had an increased number of visitors to almost 15 million 60 % being foreigners, increasing the revenue to $ 5.5 million (Johnson & Thomas, 2008, pp.79). Furthermore, the cross-price elasticity shows that middle and low income earners, if you increase the entrance fees there would be fewer visitors and vice versa (pp.83). Market failures The market failure is explained when allocation of goods or services of free market is not considered efficient. Government intervention happens when the market is not efficient, and aimed at correcting any distortions brought about by the market failure. Some of the positive externalities of the museum consist of: existence where visitors benefit from knowing the museum exists; education where the visitors are informed of what the museum contributes to their; networking an externality which provides cultural links to other museums for artists, tourists and historians. Some of the negative externalities faced museums is noise inflicted on the local community. Furthermore, merit goods are of the possible market failure the museum market could face if the positive externalities are wholly left for the private sector. Merit goods are consumed partially because citizens do not appreciate the social benefits due to consumption of education in the museum market. Government interventions Educating the staff force so as to increase efficiency and produce more external benefits. The policy makers need to ensure that they get improved returns by means of investing in human capital. Educational campaigns and advertisements enhance the demand and supply for museums as it results in the creation of more publicity and awareness. Another tool the government would use to correct this situation is free admission. Free admission would increase the number of persons visiting the premises. Free admission has opened great institutions, making history, and culture and arts, accessible to the widest possible number of individuals. Free admission has led to bringing a sense to everyone that these are possessions that we all own and share. As shown in figure 2 Youngs (2011) shows that 44 million people visited 17 of the government sponsored museums in 2010/2011. This was an increase of 30 million in the 2001/2002 period. Figure 3: Museums visits 2001-2011 in Britain (Youngs, 2011). We need to introduce policies from the regulatory framework, for example schemes introduced by bodies like the Museums and Galleries Commission in Britain. These schemes assist to maintain professional standards, as they also have an influence of reducing new entry, because fledging museums may not be able to meet the registration costs, and as a consequence find it difficult to raise public private sponsorship (Frey & Meier, 2006, pp. 28). The consumers also need to be educated on the importance of visiting museums and art galleries. Education increases productivity and causes the social marginal benefit (SMB) to rise. Figure 2: Importance of consumer education (Johnson & Thomas, 2008). With positive externalities, the state can intervene via financial support by offering subsidies. The entrance charges may be lower or can be scrapped off completely as it is the case in Britain and America. Contrarily, in relation to negative externalities, the government can support the market by means of financial intervention through taxes. The government may also utilize special exhibition to trigger demand. However, they must ensure that the special exhibitions need to have the following features: high income effect, low cost to visitors, newsworthiness, attractive to new visitor groups, and focusing attention. However, there are limitations to the government basing on the nation’s political system. Recommendations for the government Infusing innovation and diffusion within the museum sector is recommended. Innovation needs to include new technological innovations including new ways of organizing displays and managing visitors, and conservation and display techniques. To maintain free entry into museums, governments which are under pressure need to cut their funding by a certain percentage. Museums are regarded as non-profit organizations which can not be ignored. Major institutions need to focus on outreach projects in order to encourage the engagement of parts of society who would otherwise unlikely to visit. This is viewed as a better way of challenging the perceived exclusivity of the main art galleries and museums (Dowd, 2011). With regard to pricing of the museums charges, there it is recommended that we have more formal financial modeling that embraces full treatment of consumer motivations, public choice considerations and museum management aims and objectives. Government need to make decision of offering free museum admissions knowing the consequences and benefits of this decision. Since the Britain’s approach to free admission found greater demand but was not producing capital. I recommend they charge for temporary exhibitions enabling the museum to raise some sort of capital. Conclusion After almost 10 years, free entry to the museum has been found to be an accepted part of British cultural life. Jeremy Smith asserts that in spite of the current financial climate, the future of free entry to museums has been secured (Youngs, 2011). In summary, museums compete for visitors in the market place; from other isolated activities such as theme parks, historic houses and gardens. Consequently, they have the ability to with hold their own customers provided they respond to demand and supply side changes. Moreover, technological developments in communication and information can give museums a broader market, compared to those who visit the site physically. Free entry to museums ensures that culture is for everyone. However, it has been pointed out that free admission damages the reputation and image of those museums that do charge. Reference List Dowd, V. (2011, December 1). BBC News. Retrieved November 10, 2013, from Museum entry fees: How the UK compares: http://www.bbc.co.uk/news/entertainment-arts-15982797 Frey, B. S., & Meier, S. (2006). The Economics of Museums. Journal of Economics of Art and Culture , 1 (1), 1019-1047. Johnson, P., & Thomas, B. (2008). The Economics of Museums: A Research Perspective. Journal of Cultural Economics , 22, 75-85. Silito, D. (2011, December 1). BBC News. Retrieved November 11, 2013, from Free museums: Visits more than double: http://www.bbc.co.uk/news/uk-15979878 Youngs, I. (2011, December 1). Retrieved November 10, 2013, from Museums enjoy 10 years of freedom: http://www.bbc.co.uk/news/entertainment-arts-15927593 Read More