Pricing different movies differently

[tweetmeme source=”pricingright”] The question of, “Why are all the movie tickets priced the same?” have been studied at length*.  Economists express surprise at how primitive movie pricing is and how sub-optimal it is to charge the same price for all the movies. Marketers are surprised by the absence of basic tenet of marketing – segmentation and targeting, positioning the product and capturing value. Movie ticket pricing are indeed a greenfield for practicing price discrimination offering large un-captured consumer surpluses and value from price sensitive moviegoers.

Most pricing recommendations for movie theaters ask for

1. Higher pricing for weekends
2. Higher pricing based on mega budget films with stars
3. Higher pricing in the opening weeks and then reduced pricing (like Hardcover, softcover books pricing)

These methods were usually pushed aside because of the logistics of implementing them ( Movie Mystery. By: Hessel, Evan, Forbes, 00156914, 1/29/2007, Vol. 179, Issue 2) or complexity in estimating weekend box office sales. Others offered conventions as the reason for not adopting variable pricing at movies.

To be fair, movie theaters do practice  price discrimination. They sell the morning shows at a discount bringing price sensitive customers who are willing to make the trade-off (Second degree). They give discount to students (Third degree). They sell discount tickets through supermarkets that can be used after the first two weeks (Second degree).

But the basic question remains, when everything else is held constant except for the movie itself, why are the tickets for two different movies priced the same? For example, at an AMC multiplex  the 4PM screening of two new animated movies, Planet 51 and Fantastic Mr. Fox, are priced exactly the same $10.75.   Fantastic Mr. Fox is based on a book by renowned children author Roald Dahl (a very good book if you have not read alrady) and Planet 51 is a slapstick comedy of reverse ET.  Why can’t these be priced differently? Why cannot movie theaters practice price discrimination across movie titles?

The answer, I believe, lies in utility customer gets from different movies. Movie theaters can charge different prices for different movies only if the customer utility and hence their willingness to pay varies across different movies.  Stripped to the barebones, all movies are perceived as the same by customers – these are all entertainment. In other words different movies are simple horizontal product line extensions.

Based on the marketing study that found horizontal product lines are perceived identical by customers and hence have no difference in customer willingness to pay I hypothesize that customers will not accept pricing that varies across movies.

While pricing different movies differently is not possible, movie theaters can and do charge different prices when the movie varies in format or experience like 3D and IMAX 3D. For example, AMC charges $11.75 and $12.75 for 3D and IMAX 3D shows of Disney’s Christmas Carol. This is possible because the 3D shows are vertically differentiated and the perceived value to the customers vary from the baseline version.

The net is movie theaters cannot increase profits by pricing different movies differently but can do so by offering vertical differentiation in the form of 3D movies (of course this is not under the control of theaters but the studios), better seating (practiced in most other entertainment venues) or better experience (specific auditoriums with better speakers).

Footnote: Other movie ticket pricing references

1. Movie Mystery. By: Hessel, Evan, Forbes, 00156914, 1/29/2007, Vol. 179, Issue 2
2. Why Popcorn Costs So Much at the Movies: And Other Pricing Puzzles by Richard B. McKenzie (p157-163) (My review of this book here)
3. Why are all movies the same price? – Marginal revolution
4. Antitrust and Pricing in the Motion Picture Industry. Yale Journal on Regulation Summer2004, Vol. 21 Issue 2, p317-367, 51p
5. The Wisdom of Crowds by James Surowiecki (p98-102)
6. Stanford GSB Research on Why Movie Popcorn costs so much?