Movie Pricing

Nicholas Tabarrok had some interesting thoughts about movie industry pricing recently at Marginal Revolution. He points out that all movies at a given theater are priced the same, regardless of the demand for the individual films. I was reminded of this while sitting in a movie theater last Friday night that was at least 80% vacant. I was seeing the 10pm showing of The Messenger, so I paid the full price of $9. I don't know how many people were seeing the other movies that night, but presumably the "main feature" sold the most tickets.

(from flickr user Kevin H.)

Ideally, the theater manager would price the movies such that every customer pays the most they would be willing and every showing sells out. Consider this: if the theater where I saw The Messenger has a capacity of 100, and the manager sold 20 tickets for $9 each, she brought in $180 in revenue; but had she charged only $2 per ticket and sold out the theater, she would have brought in $200, plus she would have gotten an additional 80 potential concession customers (who might actually be more likely to buy popcorn or candy since their ticket only cost 2 bucks!). But this isn't how the system works. Why?

Aside from politics, union rules, and other arbitrary regulations, I think it's an information problem. If the theater manager wants to sell out every showing, she has to price every film and every showing differently - then she has to somehow manage to advertise all of those distinctions. For instance, if customers don't know they can see the 10pm showing of some film for only 2 bucks, many won't show up, the movie still won't sell out, and the manager might make less money.

There might be a better way. By pricing movie tickets the same way that airlines price their fares, theater managers might be able to generate more revenue and customers might be able to spend less on movies. A classic win-win scenario.

Imagine a system where customers could go online, and based on how early they buy tickets, how many people are expected to attend that showing, and how many people have already bought tickets, customers could can get a discounted rate. The prices would be determined entirely by how the theater manager expects to maximize revenue, possibly using a tiered system, or possibly using historic attendance data. Whatever the case, this might mean the 7pm showing on a Saturday night offers no discounts, but the 10pm showing offers some small discounts. And of course there would be a "walk-up" price, which would be equivalent to the full price that theaters charge now.

There are caveats, of course, but at least in theory, it just might work.

4 comments:

    Rob, I think you're talking about a Georgist approach to movie pricing. The "margin" (which I guess would be not seeing the movie at all) is free, and every bit of "land" (movie seat) costs slightly more depending on its "utility" (ideal time of showing).

    In Georgist theory, everybody gets to see the movie, but... the "landlord" (movie theater) gets the minimum possible "rent" (profit).

    Hmmmm.

     

    Movies are so much cheaper than airline tickets that nobody would go to the trouble of doing the research involved in getting a cheap ticket.

    On an unrelated note, can you please start your campaign to run for mayor in the next election?

     

    Mark, thanks for the tip, I'll look into that a little more..

    Joe, thanks for stopping by! I'm surprised how many people have asked me recently about running for public office. My response is typically that I don't think I have the right personality to do a good job. I'd be better as a "behind the scenes" kind of guy.

     

    As long as you're in power, making decisions- that's all that matters! I imagine our city is run by oafs who dope around without an ounce of innovation. With our location, rich culture, awesome parks, great academics, people should WANT to come to Cleveland.