Movie Theatres Ignore the Laws of Supply and Demand
Why Do I Pay the Same Amount No Matter What Movie I See or when I See It?
There's a reason why there's a huge line on the opening night of a popular movie. Why would anybody go see Movie B when it costs the same price as the popular new movie. Like the steak eaters in the food example, virtually everybody chooses the better move since the theatre charges the same price for every movie. But why? Why doesn't supply and demand affect movie ticket prices like it affects the price in virtually every other market?
This is terribly inefficient. I have to wait in a huge line to see the new movie on opening night weekend, but the theatre is almost completely empty when the less-known documentary shows on Tuesday morning. Wouldn't it make more sense to charge more for the popular movie? I'm sure people would be willing to pay more to see a popular movie than an unpopular movie. Also, more people would go see the less popular movie it were cheaper.
Also, imagine you're going shopping for roses and chocolates. Would you expect the price to be higher in the middle of the summer or on Feb 13-14? Well if we were talking about movie tickets, we'd they'd cost the same! Movie theatres have taken a small step by offering matinees at a lower price than evening movies, but the price difference is quite small. And weekend moves are no more expensive than weekdays! No matter when you want to see a movie, the price is (almost) the same. Too bad gas stations don't follow the movie theatre logic!
If supply and demand determined the price of movie tickets, things would be wildly different. I picture the following prices:
Opening night for a high profile movie on a weekend: $19.99
Weekend showing of a high profile movie: $14.99
Weekday evening showing of a high profile movie: $9.99
Low profile movie on weekend evening: $9.99
Low profile movie on weekend daytime: $7.99
Low profile movie on weekday: $4.99
I'd also expect concessions to also be discounted or priced according to supply and demand. The prices wouldn't vary so much, but should probably be lower on weekdays.
So why does the movie industry charge the same price for every movie, regardless of popularity and timing? I have no idea, but movie theatres are ignoring the free market logic that virtually every industry profits from.
Do you think movie theatres should charge the same price? Or should movie theatres vary their prices?
Published by Scott Schlimmer
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19 Comments
Post a CommentI think you misunderstand the laws of supply and demand.
Interesting article! One thing I would add is that this strategy has been employed in the past. Certain films, Birth of a Nation comes to mind, were booked as road shows and were priced much higher than ordinary movies. If memory serves, the same strategy was employed with GWTW and a few others. I like this idea but I think the issue lies with both distributors and theater chains -- the idea is that if you are going to see a movie, you are paying for two hours of "theater time". Now which movies would a theater show -- 2 dollar movies or 20 dollar movies? I'd worry that the exact opposite reaction would occur than what I would like to see -- that is, low cost movies would be driven out of theaters in the interest of only showing higher-priced blockbusters.
$20 for a ticket? No way... I can barely get myself to pay $8 for a ticket. And discounting concessions? Yeah right, that's where the theatres make a good deal of their profits, not ticket sales. During the opening weekend of a movie the profits are split 80/20. 80 going to the studios and 20 going to the theatre. It eventually lowers to 50/50 after several weeks in the theater or if it's a dud. Increasing ticket prices would make people less likely to see a movie and drive sales down. Even the increase in price couldn't make up for the lack of demand. Your argument lacks real-world application.
Oliver- Nobody has made those points, and they are very interesting. What does everybody think? Would you prefer to watch new moview at home for the lower price? Would you still pay more on occasion to watch a movie on the big screen?
didn't read any comments, sorry if this has been mentioned... but I would just like to say that movie theaters are basically history. First of all, you pay $8 to see a movie, and about $3 of that goes to the movie makers. If they movie makers could just skip the theater and make the entire $8 selling direct to you, they will. Plus, with HDTV and the massive star-trek-type entertainment systems that are increasingly the norm, why leave home for a less-comfortable and more expensive movie theater?
William - The indy's make this thought experiment interesting. A YouTube movie would initially be cheap, but could become wildly popular. These surprises seem to happen more with indy movies, mainly because they are sometimes quite good. So then we get into thinking of a movie's ticket price changing with time, in this case rising with popularity. I'm not sure where that takes things, but it's an interesting development. -- Sharon - I generally don't follow the Hollywood hype either, but Harry Potter is definitely going to outperform License to Wed. Feel free to bet your life savings on it! :-) Generally just count how many commercials you see promoting each movie. The movie with more commercials will often be more popular.
Richelle - I disagree on almost every front. First, how can a poor analogy void an entire argument? It can't. An analogy is just an illustration to make an idea clearer. And you're using 2 different scopes in your comparison. First, all movies are the same. But then Ramen and Filet Mignon (both are foods, a category like movies) are not the same. Lord of the Rings and Who Killed the Electric Car? are far from the same, just like Ramen is not the same as Filet Mignon. You're comparing apples to oranges and then drawing a fallacious conclusion yourself. And as I've said earlier in the comments, movie popularity is far from subjective. Look at advertising spending and the correlation will be overwhelming.
I'm all with you Scott on the supply and demand model. But - I truly don't know which of the two movies you mention would be more popular. I don't pay attention to Hollywood Hype anymore because I can't afford to go to the theatres! I would love a supply and demand pricing scheme - I might be able to watch newly released films again.
There is a huge fault in the logic you use in your analogy at the beginning of this article. Filet mingon and ramen are not in the same category, therefore, the price discrepancy is fallacious. Movies are all in the same category, though, in that they are all movies. Their popularity or content is beside the point, and is subjective anyway. A better analogy would be to look at all brands of ramen noodles and similar products, and their respective prices. Unfortunately, this analogy essentially voids your argument, since ramen prices are within comparable ranges. Movies are too--if you take in small discrepancies like different rates for matinees, different prices at theatres, dollar theatres, and so on.
Scott - it's a very thought provoking article. Look at Indy movies - everyone always thinks Hollywood & the "studios" Corporations, and while they still rule, smaller movies, foreign movies and even the digital diet nowadways of home made movie brewing that finds itself on sites like YouTube is proliferating - who knows - maybe someone will package the BEST of YOUTUBE and slap together a film... Would you pay FULL price for such an epic? Maybe not - but half? Possibly. And variable pricing may just entice more people back to the theaters - despite all the gimmicks of "movie rides" or serving food and drinks to people in their seats, people go to a movie to be entertained by the film and maybe competitive prices would expose more people to more diverse kinds of productions.