The Haj: The Economics of Congestion & Allocation

News clips of Muslims making the pilgrimage (Haj) to Mecca show thousands and thousands of bodies jammed together, circling and praying. I have often wondered how Saudi officials solve the problem of congestion and allocation of space when I see these clips.

Recently, the organizers of tours from the United Arab Emirates to make the Haj have been allocated fewer spots per tour organizer (thanks to JC for the information and link). The effect has been exactly what one would expect when the price elasticity of demand is low (every able-bodied Muslim is expected to make the Haj at least once in their lifetime) and the supply is reduced: prices for the tours have risen dramatically, despite jaw-boning from UAE public officials.

Not surprisingly, the tour customers wishing to make the Haj are displeased with the high prices; at the same time, the tour operators are citing high fixed costs spread over many fewer customers as the reason they need to raise their prices.

But if they are correct that the Haj industry is characterized by high fixed costs and lower marginal costs, we should soon see tour operators merging to capture these economies of scale. If there isn't any rationalization of this industry in the near future, we can probably infer that the licenses to take customers on the Haj are providing economic rents to those fortunate enough to have the licenses.