I've written a few times about prices at the movies (see here and here). One of the puzzling questions about movie ticket prices is why they are the same for all movies, whether they are blockbusters that will sell out the theatre, or low-rated B-movies that struggle to sell any tickets. That is the question that this recent article in The Conversation by Peter Martin (Australian National University) looks at. Martin puts the answer down to two things. First:
Queues for restaurants (or in 2023, long queues and sold out sessions, as crowds were turned away from Barbie) are all signals other consumers want to get in.
This would make queues especially valuable to the providers of such goods, even if the queues meant they didn’t get as much as they could from the customers who got in. The “buzz” such queues create produces a supply of future customers persuaded that what was on offer must be worth trying.
That makes sense for restaurants, where the queue to get in is quite visible to passing would-be diners. The queue acts to reduce customer uncertainty about the quality of the product. However, it is much less plausible that this effect works for movies. Even if there is a queue for tickets, there is no certainty which movie the customers in the queue are waiting to get tickets for. So, the queue doesn't really provide any information about quality for would-be consumers.
Second, and more plausibly, Martin notes:
Another is the way cinemas make their money. They have to pay the distributor a share of what they get from ticket sales (typically 35-40%). But they don’t have to pay a share of what they make from high-margin snacks.
This means it can make sense for some cinemas to charge less than what the market will bear – because they’ll sell more snacks – even if it means less money for the distributor.
This is a point that I have made before. Since movie theatres are constrained in their ability to profit from ticket sales due to agreements with the movie distributors, it is much better for them to keep the ticket prices low, and instead make money from selling complementary goods (like popcorn and drinks). This could even be an application of loss leading - selling the movie tickets at a loss, in order to increase the number of movie ticket sales, and make even more profits from the complementary goods.
One new aspect of movie ticket pricing that Martin didn't consider is movie theatres charging different prices depending on where the moviegoer sits. As the New York Times reported earlier this year:
Some middle seats at AMC movie theaters will be more expensive than others as part of the company’s new ticket-pricing strategy, announced this week.
AMC Entertainment, the world’s largest cinema chain, said in a news release on Monday that this new pricing system, known as Sightline at AMC, would be in place at all of its United States theaters by the end of the year.
The seats in the front row of the theater will be the least expensive and seats in the middle of the theater will be the most expensive, the company said. However, new prices will not affect showings before 4 p.m. or tickets sold at a special discount on Tuesdays, AMC said.
Notice that this is similar to how tickets to concerts are priced, and is an application of price discrimination. Some moviegoers highly value the seats in the centre of the movie theatre, as they have the best view of the screen. Some moviegoers are willing to pay a premium for those seats (I know I would be). The other seats have less valuable views, and would appeal to more price-sensitive moviegoers. The optimal price is lower for more price-sensitive customers, so charging a relatively lower price for less-preferred seats (and a relatively higher price for the centre seats) makes a lot of sense.
It will be interesting to see whether AMC's new pricing system works (or not). Regal Cinemas' trial of dynamic pricing for movie tickets (which I discussed in this post) was abandoned soon after it was announced (see here). So, we never really got to see if dynamic pricing worked or not. If the AMC system works, we can expect to see it rolled out at other cinema groups in due time. As I note in my ECONS101 class, in a Darwinian sense, the pricing strategies that we see persisting in the real world tend to be those that are working well (and contribute to higher profits for the sellers).
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