Sell Out

With the summer movie season right around the corner, people all around the country are psyching themselves up for the movies that they're the most excited to see.  And during those hot summer months, millions of people will be grateful for the time spent in an air-conditioned theater.

However, they might be less grateful for the long waits that most of us typically endure if we want to be among the first to see the latest hit film.  Lines for the opening weekend of a new blockbuster typically form hours — if not days — in advance.  While some people may enjoy the community aspect of waiting in a long line together, the whole ordeal does seem to highlight a certain degree of inefficiency.  For even though the people who camp out before a movie premiere aren't paying any more money for tickets than everyone else, they are spending more of their time.  Unlike the money they spend, though, the theater doesn't profit from increased waiting times (at least not directly).  And while most theater owners would probably love to accommodate people more quickly, theaters are limited by the number of screens they have and the number of films they can show on a screen per day.


An example of the price people pay for an awesome seat.

Given the limited supply of seats, is there anything theater owners can do to try to reduce the long lines of people standing around for hours on end?  Well, the simplest idea might be to raise prices: after all, if there's enough demand that the line for tickets is wrapped around the block, maybe that means movie tickets aren't expensive enough.  This can be a dangerous game, though, for just as a low price can make the line of patrons too long, a high price can make the line disappear altogether.

Still, maybe there's room for improvement here.   For example, suppose you're a theater owner trying to decide whether or not to raise your prices.  To keep things simple, let's suppose you run a 100-seat theater.  At $12 a head, this means you can earn as much as $1,200 per screening.

Based on the amount of time that people spent in line for the bigger movies, though, you know that people would be willing to pay more in order to guarantee a seat.  Suppose that on a typical sold-out Friday night, only 10 people in the audience value their ticket at the price of $12.  Meanwhile, 90 people value their ticket at $18, or more.   Based on this, you could up the prices to $18 and make at least $18 × 90 = $1,620!  Moreover, if there are people who couldn't get tickets before, but value the film at $18 or more, it's possible you could raise prices and still sell out the theater.

Of course, even at $18, some film superfans may think this is a deal.  If there are people who are willing to pay $24, or even $30 to watch a film in you're theater, you'd still be losing out on that potential profit.  But is there a way to get these types of people to pay more without alienating the customers who value the film less?  What if movies charged more for weekend evening showings than for other times?  (After all, there's already a precedent for tiered pricing at the cinema; matinees are cheaper, for example, under the assumption that screenings earlier in the day will be less popular.)  Or what if you could pay more to select your seat earlier?  Are these the types of things that customers would embrace, or do you think that these kinds of differentiated pricing ideas will turn customers off?

Teachers, want to have this conversation with your students?  Then check out our latest lesson, Sell Out.

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