Thursday, 19 May 2016

We probably are paying more for better movies, but it's not obvious

Two years ago I wrote a post about uniform pricing at the movies. It's interesting that in the two years since then, little has changed. The price of a movie ticket is still nominally the same, regardless of whether you are seeing a blockbuster new release, or a B-grade horror movie. In my earlier post though, I pointed out why nominally uniform pricing probably doesn't actually lead all movies to be priced the same when you consider the average ticket price:
First, consumers are typically unable to use complementary passes at new movies. However, the length of time a new movie remains "no complementaries" varies by movie. A summer blockbuster might remain "no complementaries" for a few weeks, whereas a B-grade horror flick might only be "no complementaries" on opening night or not at all. You might argue though that the price is the same, whether the consumer is using a ticket purchased on the day or a complementary ticket which was purchased earlier. However, complementary passes are usually distributed in bulk to third parties and for less than the full ticket price. The effect of this is that the average price paid by consumers for a movie varies by movie. It's probably not a large difference (although if the movie theatres didn't enforce this rule, along with many others I would certainly be saving any free passes for the high-demand movies), but it will have some effect of changing the average price received by the movie theatre even though their posted price doesn't change.
Second, movie theatres are very deliberate in their selection of session times for movies. The low-demand movies are more likely to be playing at low-demand times (Monday afternoon, etc.), when ticket prices are lower. So again, this will affect the average price the movie theatres receive for each ticket sold for different movies with low-demand movies (being more likely to be in low-price session times) having a lower average price than high-demand movies.
So, overall while variable pricing is not observed explicitly in the market, I would argue that there is at least some variable pricing at play through the non-price strategies undertaken by the movie theatres.
A couple of additional points on pricing at movie theatres came up in class discussion in ECON100 this week. Movie theatres are increasingly providing premium seating options (I made this point in the earlier post), but not all of their theatres have the same configuration. Some have more premium seating than others. So, ensuring that high demand movies are shown more often in the theatres that have more premium seats will also lead to higher average ticket prices for high demand movies when compared with low demand movies.

On a more speculative note, consumers at high demand movies probably have less elastic demand for the movie experience (as a whole) than consumers at a low demand movie. Faced with a 'low' ticket price relative to their demand, the consumers with low elasticity for the whole experience might spend more on concessions (drinks, popcorn) and end up spending more overall as a result, leading to higher profits for the movie theatres (the profit margin on concessions is quite high). I don't know how robust this latter argument is, but on the surface it seems plausible.

Either way, it is clear that movie theatres' pricing still largely defies logic. Marginal Revolution offers some additional thoughts here.

Read more:

No comments:

Post a Comment