Why Do Products Sold in Isolated Island Resorts Higher in Price Than That of Sold in Supermarkets?

Why do products sold in isolated island resorts higher in price than that of sold in supermarkets?

Philippines, as an archipelago, is filled with thousands of island resorts that offers not just places for relaxation but also havens for the adventurous hearts. It’s been always a pride for Filipinos to boast about its world class resorts that has always been visited by tourist from time to time. With the recent holidays and the fast approaching summer vacation, many of these island resorts open to cater more guests breaking out from the tight schedules of work.

Lifestyle in mostly all of these isolated island resorts is somewhat different from that of the city. An example of it is how the products and services in the isolated island resorts vary from that of offered in the city. Products in the island resorts are much more expensive that can even go double in price compared to what is sold in supermarkets. This may confuse the thinking of tourists but this scenario can be explained with some economic principles.

Scarcity. Products in isolated island resorts are transported from the city through boats. Thinking that a boat cannot contain much of load, products offered in the island are much fewer than that in the supermarket. This exacerbates the level of scarcity. Resorts exploit this relative shortage by engaging in price gouging, setting prices that is higher than that of a competitive market. The resort becomes a de-facto monopoly assuming that the said resort is the only one to offer a specific product or service in a small island. As there is no alternative supplier and the audience is a captive one, in theory, resorts are able to charge a price equivalent to a customer’s highest marginal willingness to pay, extracting all consumer surplus.

Demand. A consumer’s demand on an isolated island resort is less sensitive to price, hence, willingness to pay is much higher than when buying from a supermarket. In this situation, the tourist is not being “ripped off” by the resort because if their willingness to pay is lower than the price they are being charged, they will not buy the good. If they do buy the good, it confirms that the value the tourist places on the specific good is at least equal to the price charged – in this case, much higher than for a comparative can from a supermarket.