This blog post examines whether inflated pricing can be justified as market pricing amid surging tourist demand, and explores the point where price and brand image collide, using the case of Yesan Market.
Is Overcharging a Market Price?
In January 2023, Baek Jong-won partnered with his hometown of Yesan County to open five restaurants in Yesan Market, aiming to revitalize the local traditional market. As a result, Yesan Market, which previously saw only 20-30 visitors per day on average, rapidly emerged as a regional hotspot attracting over 180,000 visitors in just two months.
However, Yesan Market entered an emergency closure from February 27 to March 31. The stated reasons were excessively long waiting lines, issues with restrooms and parking, and several operational problems that surfaced during the restaurant’s operation. Consequently, Baek Jong-won held a meeting with merchants on March 7. During this meeting, it was revealed that accommodation fees, which had been around $60 before the project, had significantly increased to $130–140, sparking controversy. Criticism arose, labeling this as so-called “rip-off prices.”
According to a simple economic model, price increases when demand rises are a natural phenomenon. Conversely, attempting to externally control prices can lead to various problems. Despite this, Baek Jong-won personally requested merchants at the meeting to refrain from raising prices. Centered on the accommodation fee hike controversy, it is necessary to examine whether the ‘invisible hand’ of market economy principles should take precedence, or whether Baek Jong-won, as the ‘visible hand’ leading the project, should be prioritized.
Why did prices rise?
First, let’s consider this based on economic models. When people seek a particular tangible or intangible good in large quantities, a price increase is a natural outcome absent external intervention. If demand exceeds supply, suppliers can sell all their goods even at higher prices. Consequently, suppliers can earn greater profits by selling to consumers willing to pay the higher price.
Of course, from the consumer’s perspective, the higher price may initially feel frustrating. However, when demand exceeds supply and prices rise, that price signal incentivizes suppliers to increase their supply. If Baek Jong-won’s project revitalizes the Yeonsan Market, it also increases the likelihood that other businesses will seek new opportunities in the area. In other words, the phenomenon of rising accommodation prices near the Yesan Market could become a key driver for new entrants into the local lodging industry. The situation where price increases lead to expanded supply, thereby satisfying heightened demand while simultaneously offering suppliers new opportunities, can be seen as the result of the ‘invisible hand’ – a fundamental principle of the market economy – at work.
So why has the price hike for lodging facilities near the Yeosan Market become a target of criticism? The first issue that comes to mind when allegations of price gouging arise is the possibility of collusion among suppliers. Collusion refers to suppliers forming alliances to artificially set high prices, rather than prices forming autonomously in the market. Collusion creates prices higher than those formed through autonomous price-setting processes, ultimately causing significant harm to consumers. It is a fundamental principle of economics that collusion negatively impacts both the efficiency of the market economy and income distribution.
For this reason, governments also seek to regulate and penalize collusive behavior, but in practice, securing clear evidence to prove it is not easy. Therefore, in situations where collusion is suspected, methods such as regulating prices to lower them or recommending and encouraging voluntary price reductions are sometimes employed. In such cases, externally induced price reductions can lead to increased overall social welfare.
However, it is equally important to consider the possibility that the price surge was not due to collusion, but purely the result of a sharp increase in demand. The number of tourists visiting the budget market is estimated to have increased by about 100 times compared to previous years. Even if many were day-trippers, it is highly likely that a significant number of visitors stayed overnight. Even without collusion, if demand did not decrease despite price increases, suppliers would have had an incentive to raise prices.
Furthermore, it is important to note that accommodation facilities are goods whose supply is difficult to increase in the short term. While accommodation services utilizing existing housing, like Airbnb, can expand supply relatively quickly, constructing new facilities or remodeling existing ones requires considerable time. Consequently, it inevitably takes time to reach a state of equilibrium between supply and demand, and during this process, consumers find themselves in a situation where they must endure inconvenience.
One way to gauge whether prices rose due to collusion or increased demand is to examine the vacancy rates of lodging facilities near the budget market. If there are a significant number of vacant rooms, the likelihood of collusion is high. In this case, it is desirable to induce price reductions to curb the unfair profits of lodging operators and increase consumer benefits. Conversely, if lodging fees have more than doubled yet nearby accommodations have almost no vacancies, this strongly suggests prices rose due to high demand, weakening the basis for concluding prices were excessively inflated by collusion.
Indeed, news frequently reports problems with restaurants or souvenir shops in famous tourist destinations excessively raising prices during peak seasons. Among these cases, some involve price increases due to concentrated demand, while others result from collusion. Alternatively, even without collusion, high production costs might make it difficult to lower prices. While the impact of production costs on pricing cannot be ignored, sufficient sales are ultimately necessary for business sustainability. If sales are sluggish, lowering prices at a certain point or considering closing down can be seen as a choice consistent with market principles.
Brand Image and Customer Satisfaction
On the other hand, even if a price hike stems from a surge in demand rather than collusion, controlling the magnitude of the increase is sometimes preferable. This is because it directly impacts the supplier’s brand image. Even if prices rise according to economic and market principles due to rapidly increasing demand in a situation where supply is constrained, consumers may not readily accept excessively high rate increases. During this process, consumers are highly likely to perceive the price hike as ‘unfair’ or ‘abusive’ and feel strong displeasure.
For example, it is natural for the price of apples to rise when overall demand increases. However, if demand for a specific brand like ‘Yesan Apples’ surges significantly, it is essential to consider not only a simple price adjustment but also the brand’s image. Raising prices sharply in an uncertain situation—where it is unclear whether the demand increase is temporary or sustainable long-term—can lead to accumulated consumer dissatisfaction. This dissatisfaction may ultimately result in losses for the supplier in the long run.
Demand for all goods and services is influenced not only by quality but also by location and timing. A sudden rain shower can increase umbrella purchases, driving up their price. Even identical lodging facilities inevitably vary in price based on location; accommodations near the Budget Market have likely seen their value rise due to the market’s status as a tourist attraction. However, it’s entirely foreseeable that consumers will feel displeased if prices rise excessively.
Considering that cases strongly suspected of collusion have repeatedly occurred, even ‘justified’ price increases are easily suspected of being collusion.
Accommodations near Yesan Market are one element contributing to the brand image of Yesan Market as a tourist destination. Therefore, if the issue of accommodation price increases is negatively highlighted, it could damage the image of Yesan Market as a whole, potentially reducing visitor traffic, rather than being solely an issue for individual lodging businesses. Furthermore, the possibility of tourists shifting to other regions competing with Yesan Market cannot be ruled out.
In this context, even if lodging fees were raised purely according to market principles, in reality, controlling or restraining price increases to some extent may be more advantageous for suppliers in the long run. Consumers expect not just simple utility but overall satisfaction when purchasing goods, and this satisfaction is formed through various channels. Simultaneously, the paths to dissatisfaction are also diverse. Therefore, suppliers must pay careful attention to consumer satisfaction in multiple aspects, including pricing policy, and must approach price increases cautiously.
The county government also faces a choice. Regulating to prevent excessive increases in lodging fees could positively build the region’s brand image, but it also risks causing inconvenience for tourists struggling to find accommodations. Furthermore, the pace of new investment in lodging facilities could slow, potentially necessitating additional support from the local government. Meanwhile, separate from the overcharging controversy, the issue of excessively small portions of ordered food could constitute a form of fraud. Therefore, administrative measures mandating weight labeling and ensuring strict compliance would clearly help enhance the region’s image.
Baek Jong-won has maintained relatively low pricing across all his brands and has presented the condition that merchants participating in the Yesan Market project must keep food prices low in exchange for various forms of support. However, people’s perceptions of price vary greatly, and there is no single correct answer. Rather than trading emotional accusations like “complaining that chicken is expensive makes you a beggar” over pricing policies, an attitude of understanding why these diverse positions exist is needed. That will be the starting point for understanding both the market and consumers.
