Monday, November 27, 2006

Movie Ticket Prices

From Greg Mankiw, I thought this piece in the Washington Post was interesting:

Why will movie theaters charge the same $9.50 to see "Casino Royale" this Saturday night that they charged to see the disappointing remake of "All the King's Men" on a Wednesday night in the middle of September?

Once upon a time, theaters charged more for their blockbuster "event" movies. Wouldn't they sell more tickets and popcorn, and make more profit, if they increased the price when demand is high, and lowered it when demand is low?

Some suggested answers:

Among the factors cited most often by theater owners are the cost and hassle involved in charging different prices for different movies on different days. There's the complexity at the box office and the need for some mechanism to make sure that patrons who buy cheap tickets for one theater at the multiplex don't wind up at expensive movies. On the other hand, it's hard to believe there isn't some simple technology that could solve most of these problems.

A more plausible explanation is that consumers might consider variable pricing as somehow unfair. But the experience in other industries suggests that such objections can be overcome, particularly if theater owners would phase in the new prices by introducing discounts for slack periods before raising prices for hit movies on busy weekends.

My hunch is that these pricing arrangements between the studios and the theater chains, which have always been shrouded in secrecy, are the answer to our puzzle. It is the studios that want to maintain uniform pricing because it is the theater owners who would get the most benefit from variable pricing. And according to Orbach and Linav, when a few chains have tried to experiment with variable pricing, they often found that they lost access to the best movies or faced demands from distributors for higher per-head charges that discouraged them from offering discounts.

Now that the idea is out there, maybe some risk-taking theater owner will give it a try?

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