Economics of Movies

MR had a guest post from Alex Tabbarrok’s brother, Nicholas Tabbarrok, an independent movie producer giving his two cents on the industry, specifically movie pricing.  Why doesn’t the price of a movie ticket reflect the cost of a movie? In summary– and theory! — an independent film should be cheaper to see compared to an expensive blockbuster right?  Well, other than the incorrect assumption that a quality movie can be judged solely on its budget, (i.e. compare District 9’s budget to Transformers) in Philadelphia, I have several theaters that vary in pricing.   One that has the big blockbusters, with the usual ticket pricing of $10.50.  Another with blockbusters in a bad neighborhood (Temple University’s campus) that runs a little cheaper (more so for students) at $9.75.  A mix of movies at prices that hit $12.50 for ticket in University City that mostly pays for the movie theater’s labor. Why? It has assigned seats.  Lastly, there is the art house theater, where only independents play and prices vary widely throughout the week.

So what can I assume from this?  It is mostly the theater that determines the ticket prices, not the movie.   If you have ever seen a movie in Japan, prices vary widely.  Of course the type of films being shown (English or Japanese, Subtitled or not) makes it easier to discriminate, but theaters also used another mechanism.   Prices varied day-to-day…as if it matched demand! Some movies, probably the more popular ones, could hit almost $30 dollars a ticket! Some were moderate.  To see Cloverfield when it came out, in english with no subtitles, came in at $15 a ticket.  Since land is so expensive in Tokyo, it only makes sense that movie theaters will try and capture as much consumer surplus as they can in order to recoup their cost rather than just an across the board price.

It would be interesting to see if theaters in the United States could do the same?  But in the case of Philadelphia, it already does…regionally at least.  Especially for independents.  The Ritz landmark theaters can offer increasingly cheap discounts for seeing independent films at prices that more than accurately reflect the budget cost of the movie.  I should mention one more observation however…many of the movies are practically empty.  How about that for supply and demand?


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