Saturday, March 11, 2006

Movie Pricing

Nearly three years ago, I wondered why movie theaters don't price discriminate. Luckily, someone has now written an academic paper on that question:
Uniform Prices for Differentiated Goods: The Case of the Movie-Theater Industry


BARAK Y. ORBACH
The University of Arizona
LIRAN EINAV
Stanford University - Department of Economics; National Bureau of Economic Research (NBER)
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January 2006

Arizona Legal Studies Discussion Paper No. 06-07
NYU, Law and Economics Research Paper No. 04-02
Harvard Law and Economics Discussion Paper No. 337


Abstract:
Since the early 1970s, movie theaters in the United States employ a pricing model of uniform prices for differentiated goods: At any given theater, one price is charged for all movies, seven days a week, throughout the year. This pricing model is puzzling in light of the potential profitability of variable pricing that corresponds to demand characteristics. Another unique characteristic of the motion-picture industry is the legal regime that prohibits relational arrangements between distributors and retailers (exhibitors) and allows only certain forms of spot contracts. We study the persistence of the uniform pricing regime in the motion-picture industry and argue that the extreme legal constraints on the form and substance of vertical relationships in the industry could be the prime cause of the persistence of the uniform pricing regime. We explore additional hurdles to the transition to variable pricing in the motion-picture industry and argue that these hurdles could, in principle, be individually overcome. Nevertheless, the combination of these factors may have an impact on the persistence of the practice.

1 Comments:

Blogger Matt Drachenberg said...

Saw your letter in the local paper today. Well done.

2:09 AM  

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