4/14/2011

Movie ticket prices and profits

University of Sydney economists Nicolas de Roos and Jordi McKenzie have written Cheap Tuesdays and the Demand for Cinema. Their study is based on movie attendance patterns in Sydney, but their methods and conclusions look relevant world-round. The abstract:
Many movie markets are characterised by extensive uniform pricing practices, hampering the ability to estimate price elasticities of demand. Australia presents a rare exception, with most cinemas offering cheap Tuesday ticket prices. We exploit this feature to estimate a random coefficients discrete choice model of demand for the Sydney region in 2007. We harness an extensive set of film, cinema, and time-dependent characteristics to build a rich demand system. Our results are consistent with a market expansion effect from the practice of discounted Tuesday tickets, and suggest that cinemas could profit from price dispersion by discounts based on observable characteristics.
Their conclusion:
Our results imply that cinemas could increase profits by offering more off-peak pricing, and by employing variable film pricing practices. This doesn't necessarily imply that the pricing strategy should be particularly complex - it could be as simple as categorising certain films as "blockbusters", or offering a "new release" and "old release" price contingent upon some (commonly known and pre-specified) week of the run.