Economic Theory on How Much to Charge for Wedding Photography

[ckiang]

Originally posted by SNAG


You have a point there...
A photographer has relatively low variable cost (the costs of the film + developing), since the fixed cost (the camera equipment) is already there.... even without any production (shooting photos)

And to a photographer, besides the variable cost of the film + developing, maybe another one would be the time and effort spent into the photoshoot (but that's kinda intangible)...
So he/she would be able to charge a lower price, as long he/she can cover at least his/her variable costs right?

This analysis is getting interesting...

Consider this. For a typical wedding, 10 rolls are typically required. Assuming the photographer chooses to use pro film like NPH 400 for the entire wedding, and develop them at $0.40 per 4R + $3.50 developing fee. Total cost will be :

( $6.80 (NPH) + (36*0.4+$3.50) ) * 10 rolls
= ( $6.80 + $17.90 ) * 10
= $247.00

Suppose our photographer does not have a car and travels to and from the couple's place and hotel via cab. Assuming all the travel expenses is $50.

Our cost now goes to nearly $300, so let's just take it as $300 for ease of calculation.

Now, if the photographer shoots the morning ceremony from say, 6am to 1pm, and the banquet at 6:00pm to 11pm, total hours spent will be 12 hours.

Here comes the interesting part.

A: If he charges $500, he earns only $200 for the 12 hours. That comes up to only about $17 per hour.

B: If he charges $800, he earns $500 for the 12 hours, which comes up to about $42 an hour.

A typical tutor probably earns more than scenario A, and the tutor probably has a lot less stress teaching a student than a wedding photographer who has to deliver good prints at the end of the day.

And we have not even factored in album cost, and the time taken to edit and do up the album for the wedding couple.

Or you may say, well, okay, let's use normal film as opposed to pro film. The last time I checked, Fuji Superia XTRA 400 costs $10 for 3 rolls.

So, our cost will be:
( $3.30 + (36*0.4+$3.50) ) * 10 rolls
= ( $3.30 + $17.90 ) * 10
= $212.00

Which doesn't make the profit a lot better. Unless you go all out and use really cheap film, and process at a really cheap lab.

So ask yourself, is it really worth it charging that kind of money just to get the job?

Regards
CK

 

[Klause]

Wah.. my comment so powerful. Led to full scale economic anaylsis.. maybe we should compile it into whitepaper. haha.. just kidding. :bsmilie:

 

[jude]

Originally posted by SNAG

Woah...
Just took your A levels econs today?
If you had > me too!!!
How was it? You may want to PM me...
Why are you classifying photographers as monopoly?

Just to ask, can we classify the market demand as monopoly? I thought monopoly is when a single party dominates the whole market due to he/she being the sole provider of that particular good/service?
Anyway, monopoly >

erm, if i'm not wrong, 3rd degree price discrimination is when the monopolist sets a higher price in the market with more inelastic demand.....

what you are saying sounds more like 1st/2nd degree price discrimination (sorry, gotta check my notes )
What you are writing sounds more like sticky price > oligopoly....

no la me oredi in uni, had a paper called industrial organisation...

well, u are rite that one single firm dominate the industry in monopoly, aren't we the sole provider of photography services? that's y i used monopoly to describe the market now.

u are rite to say that the more inelastic that particular group's demand curve is the higher price the monopoly can charge. what i was saying different groups have different elasticity of their demand curves so the monopoly charge differently.

 

[mervlam]

Originally posted by jude

well, u are rite that one single firm dominate the industry in monopoly, aren't we the sole provider of photography services? that's y i used monopoly to describe the market now.

I would disagree that wedding photography service is a monopoly. For instance, if one couple finds that photographer A charges too high, they can always look for another photographer B, who may charge at a price closer to the equilibrium price due to demand and supply. Photographer A will lose out. This sounds more like the model of a perfect competitive market.

Besides, that's no barrier to people entering the market to be wedding photographers.

Are you referring "we" as photographers? Think about this example of farmers being the sole provider of food in the market. But aren't the farm market still a perfect competitive industry?

Btw, I'm also in Uni. Took a course in Principles of Economics as a core subject.

 

[YSLee]

Nope, it's not a monopoly. There isn't a single source of photographers setting a single standard price. If it was, we won't be complaining about photographers undercutting their brethen.

 

[jude]

Originally posted by Mokole
To suggest that all photographers act as a monopoly would mean there are barriers to entry into this field, and all the photographers share a single marginal revenue and marginal cost cruve resulting in long term positive economic profits.

This isn't really the case is it?

well, pardon me for my limited knowledge, i was suggesting that all photographers acts like a monopoly (look at it at a macro level) there certainly are barriers to entry --> fixed costs? (buying of cameras? learning ur trades?) they definitely incurred big costs. we do share about the same marginal cost (variable cost like developing and films do not deviate too much rite?) however, marginal revenue can be different becos different consumers face their own unique demand curve hence different marginal revenue. Not taking into account the fixed cost(buying of equipment, etc) aren't most of the people doing weddings earning positive economic profits even if they do charge a lower price but still higher than perfect competition price (which is your marginal cost)?

There may be differences in price, but I think it is more likely a case of people charging below the equilibrium price as a perfectly competitive firm would in times of economic loss rather than price discrimination.[/B]

hmm.. in times like that i think perfect competition firms would cease production since price is lower than yr costs, so what's the point of production?

Price discrimination would suggest capturing the consumer surplus, and if that was the case I think there won't be complaints about people "driving the price down" in the first place. [/B]

well third-degree price discrimination is just that we capture different amount of consumer surplus, people who charge higher price get more of the consumer surplus while those who charge lower will get lesser. ultimately, it depends on the consumers themselves as to whether how much are they willing to pay.

i am assuming that photography is a homogenous goods which obviously isn't the case. while, isn't econs just a theory with loads of asumption for it to work??

 

[mervlam]

Originally posted by YSLee
Nope, it's not a monopoly. There isn't a single source of photographers setting a single standard price. If it was, we won't be complaining about photographers undercutting their brethen.

Excuse me, but your explanation doesn't cut it. A monopoly consist of only ONE firm, not a group of photographers waiting to do business at the same price.

 

[mervlam]

Originally posted by jude


well, pardon me for my limited knowledge, i was suggesting that all photographers acts like a monopoly (look at it at a macro level) there certainly are barriers to entry --> fixed costs? (buying of cameras? learning ur trades?) they definitely incurred big costs.

There are two main forms of barriers. Natural barriers and legal barriers. Natural monopoly exist when it is efficient of run to produce a good or service by one firm instead of a munber of them. Legal monopoly is a market restricted by concentration of ownership of resource or by govt grant or license.

TFC (total fixed costs) cannot be taken as a form of barrier. They are inherent in businesses.

I have to admit that this thread is getting real interesting. :thumbsup:

 

[Mokole]

Originally posted by jude


hmm.. in times like that i think perfect competition firms would cease production since price is lower than yr costs, so what's the point of production?

When perfect competition markets are facing negative economic profits, the firm may still be making positive accounting profits. As long as marginal revenue is higher than the variable costs, it makes sense to continue production as the firm is still recovering its fixed costs.

In such a case, the firms that cannot sustain at a loss will be washed out of the market in the long run, and the supply will shift accordingly and raise the price.

 

[Mokole]

Originally posted by jude


i am assuming that photography is a homogenous goods which obviously isn't the case. while, isn't econs just a theory with loads of asumption for it to work??

It isn't *EXACTLY* homogenous, but how much diffrentiation is there? Skill level may count for something, as does film quality, but in the end most couples will want their picture in print. I doubt most will appreciate the perfect lighting, or the kodak moment. I don't mean to belittle the efforts of photographers, but to the layman it's just a service to be rended with due skill and care.

 

[YSLee]

Originally posted by mervlam


Excuse me, but your explanation doesn't cut it. A monopoly consist of only ONE firm, not a group of photographers waiting to do business at the same price.

Did I say a group of photographers? Read (and I do mean read) my post carefully. Or are you one of those who studied econs word for word, and a slight shift in phrasing throws you off?

 

[mervlam]

Originally posted by YSLee


Did I say a group of photographers? Read (and I do mean read) my post carefully. Or are you one of those who studied econs word for word, and a slight shift in phrasing throws you off?

my my.... u sound hostile & sarcastic. i made a mistake, okay?

 

[jude]

Originally posted by mervlam


I would disagree that wedding photography service is a monopoly. For instance, if one couple finds that photographer A charges too high, they can always look for another photographer B, who may charge at a price closer to the equilibrium price due to demand and supply. Photographer A will lose out. This sounds more like the model of a perfect competitive market.

Besides, that's no barrier to people entering the market to be wedding photographers.

Are you referring "we" as photographers? Think about this example of farmers being the sole provider of food in the market. But aren't the farm market still a perfect competitive industry?

Btw, I'm also in Uni. Took a course in Principles of Economics as a core subject.

i was looking at the industry as a whole (macro level) that's y i brought in price discrimination as a topic. Photographer A and B are all part of the monopoly and they just cater to different groups of people who have different reserve prices.

well, if it is a perfect competitive market then people like ckiang (sorry, i only remember yr name as the pro ard and the most helpful one ) would be charging at a perfect competitive price!! in that case, there wouldn't be any complaints that people are undercutting prices rite?

Barriers to entry: buying of photo equipments... etc.. i was saying people who wants to compete with us(the monopoly) have to pick up photography skills as well as equipment.

hmmm, in actual life there can never be perfect competition industry... for example, in the supermarket u find rice of different brands eg. thai rice la, american rice la but they are still rice rite(hence homogenous goods) and often their prices would be different rite?

well, i am majoring in econs at nus.... not that everything i said is rite but maybe i just see things differently.

 

[YSLee]

Originally posted by mervlam


my my.... u sound hostile & sarcastic. i made a mistake, okay?

Ah, mistakes are fine, but

Originally posted by mervlam


Excuse me, but your explanation doesn't cut it.

wasn't very pleasent either.

 

[mervlam]

Originally posted by YSLee

wasn't very pleasent either.

Wouldn't be an issue if it was me. Anyway, sorry for the mis-read.

 

[Mokole]

Originally posted by jude


i was looking at the industry as a whole (macro level) that's y i brought in price discrimination as a topic.

When you talk about macro economics, you're dealing with GDP and GNP. Even if you're looking at it from an industry's perspective, it is still micro but at a industry level.

Originally posted by jude


well, if it is a perfect competitive market then people like ckiang (sorry, i only remember yr name as the pro ard and the most helpful one ) would be charging at a perfect competitive price!! in that case, there wouldn't be any complaints that people are undercutting prices rite?

You said it yourself. Real world models rarely fit into a sterotype. The pros could be an exception. GENERALLY speaking, the average joe photographer are price takers.

 

[Mokole]

Originally posted by jude


Barriers to entry: buying of photo equipments... etc.. i was saying people who wants to compete with us(the monopoly) have to pick up photography skills as well as equipment.

That doesn't exactly stop anyone from entering the market does it? All it means is that they have to buy the equipment and learn the skill.

There is no government imposed restriction, nor is there a legal restriction like in the case of a patent. There is also no control of economic resources so that the current photographers are the *ONLY* ones who can produce photos.

 

[jude]

Originally posted by Mokole


When perfect competition markets are facing negative economic profits, the firm may still be making positive accounting profits. As long as marginal revenue is higher than the variable costs, it makes sense to continue production as the firm is still recovering its fixed costs.

In such a case, the firms that cannot sustain at a loss will be washed out of the market in the long run, and the supply will shift accordingly and raise the price.

erm... MC is found by differentiating total cost(which is total fixed cost plus total variable cost) since fixed cost is a constant so MC will be the diiferentiate of VC. In perfect competition, MR=MC=P is the profit max situation of the firm. and at that position, economic profit is zero and account profit is ambigeous(could be higher) and MR will NOT be higher than variable cost since MC is derieved from VC at that point. so if u count the fixed cost, the price that u sell at perfect comp make negative profit. Now, this model only can find out whether the firm is making economic profit or not and accounting profit is ambigeous at that point since the firm is making negative economic profit it WIll DEfinitely ceased production(not leave the industry) in the short-run.

 

[Mokole]

Economic profit is the difference in value of the Price and the AVC isn't it?

Marginal cost is a "U" shaped curve, and it only tells you at which point the firm should produce. AVC and ATC are also "U" shaped curves and are at a minimum point where they intersect the MC curve.

What this means is that it is possible for the firm to produce below the optimal point. It does not mean that firms *ACTUALLY* produce where MC = AR = MR = P.

Therefore economic profit is only zero where Average TOTAL Cost is tangent to D = AR = MR = P AND firms produce where MR = MC.

Where Average TOTAL Cost is ABOVE D = AR = MR = P, the firm makes an economic loss. As you have so cleverly pointed out, accoutning profit is ambiguous at all points. It is therefore possible for a firm to make an economic loss and still make possible accounting profits is it not?

As for firms shutting down or leaving the industry, this is dependant upon the firm itself. I agree with you that it is likely that a firm will stay shut down for the short run, and I *DID* say "In such a case, the firms that cannot sustain at a loss will be washed out of the market in the LONG run, and the supply will shift accordingly and raise the price."

Hence my advice to photographers to stick by their guns.

 

[Ian]

I fully concur with Jed's stance on this issue.

However for all of you budding ecconomists .. here's a few things you've not yet factored in about professional photography and the wedding market.

A few little issues.

Professional Photographers worth their salt in the wedding market operate on average in 2 formats, Medium and 35mm. So lets assume a pretty average professional wedding kit is going to cost around 30K total.

Most decent professionals also carry indemnity insurance, pubic liability insurance and equipment insurance.

So for your consideration here's the following list of fixed costs based on real world professional wedding photography.

Fixed overheads

Insurance (equipment) A Typical rate is 4% of equipment cost per annum.

Commercial Indemnity and Public Liability insurance. At least 1000 p.a.

Equipment Depreciation. It is the industry standard that equipment is replaced every 8-10 years.

Equipment purchasing loan. If the photographer has to finance new gear via a financial institution then replyments can be considered a recurring overhead.

Advertising if used. eg: Bridal Magazines, trade directories, newspapers etc.


Shooting Costs (on location)

Transport (mentioned previously) either in the form of vehicle running costs, or public transport.

Film and processing

The wedding album. Most are specially made for the client and good ones can cost 300 bucks plus.

Suit replacement and cleaning (I kid you not, it's a tool of the trade).

Parking fees and enterance / location fees as applicable.

Cost of travel to from the lab and to from clients dwelling.

Other Costs involved

There's also the following to be factored in:

Taxes (eg: business and personal income tax)

Supperannuation payments

Phone bill (call costs etc)

Hire of extra equipment if required.

PA fees if required.

There's other costs associated with wedding photography, however it's up to you guys and gals to figure them out.