Friday, November 24, 2006

 

...and Bonzo probably knew more about economics than Steven Pearlstein

Washington Post writer Steve Pearlstein informs us of a pressing problem for today’s movie consumers: Steven Pearlstein - It Was Better With Bonzo

Yeah, I know there are more pressing problems to be concerned with but this guy of late has really begun to annoy me with his prominent display of economic ignorance. Here’s what he is currently nostalgic about:

Not only did it cost more to see Clark Gable in "Gone With the Wind" than Ronald Reagan in "Bedtime for Bonzo," but the ticket price also varied depending on whether you saw them in a first-run movie house downtown or a second-run theater in the suburbs, and whether you took in a matinee or an evening showing. And "ladies' nights" were a real bargain.”

(Chalking it up to my perhaps sensitivity to such things, I’ll not make much of what I perceive is his gratitutious (and not original) dig at Ronald Reagan as a B-grade actor.)

Perhaps wanting to display an understanding of rudimentary economics, he rhetorically asks:

“Wouldn't they sell more tickets and popcorn, and make more profit, if they increased the price when demand is high, and lowered it when demand is low?”

This is all part of a lament over his inability to understand why movie theaters don’t vary their ticket prices like they used to.

Uhh, Steve, they do.

I may attend only 2 movies a year but his criticism just didn’t sound right. So I went online to see about ticket prices:

AMC Tysons Corner – Saturday Novembe 25, 2006:

If I want to see the 11PM showing of “Let’s Go To Prison”, a ticket will cost me anywhere from $9.50 (adult) to $6.50 (child).
The 8PM showing of “For Your Consideration” - $10.00 (adult), $8.00 (senior)
The 3PM showing of “Deck the Halls” - $8.00 (adult). $7.00 (child)
The 10:55AM showing of Borat - $6.00 for all
MovieTickets.com. Purchase movie tickets online.

If I’m not in a rush to see a movie, there is always the Arlington Cinema N Drafthouse (and I still miss the Bethesda version). At the Cinema N draft I can watch second run movies such as “Pirates of the Caribbean” for $5.50 this weekend. And if I don’t mind going this Monday at 7PM, I can see it for a buck ($1)…and enjoy a cold beer while watching in a comfortable seat.

So, in a matter of minutes, I found a local theater that had varied pricing on different movies and for different times. I also found a local theater specializing in cheaper second run movies.
But I’m guessing that’s all irrelevant because this is probably just something that Mr. Pearlstein wanted to vent about...but not take a stand on.

“It remains an open question whether variable pricing would, on balance, be good or bad for consumers -- discounts for some could well be offset by higher prices for weekend tickets to hit movies.”

For this to make sense, he’d have to believe that, under the current system, consumers of the less-popular movies are subsidizing the more popular movies. And more incredibly that the movie theaters are underpricing the hits.

But a contention of his article is also that the less-popular movies are over-priced and could possibly bring in more revenue with lower ticket prices. Perhaps the lower ticket prices would bring in enough new customers so as to offset the discount in ticket price. I guess he thinks this increase in revenue would then be offset by increasing ticket prices on the more popular movies so as to lower their demand and decrease their revenue and…wait a minute, let me start over.

Comments:
It's not at all clear that the price and quantity sold of popcorn, etc. would be cross-elastic according to the price of the movie ticket. Do cheap tickets attract cheap people who won't pay $4.50 for a soda? Does a price increase in the ticket increase or decrease the average concession sale per patron, i.e. is it the popcorn-hog spendthrifts or the concession stand cheapskates who are willing to pay the higher ticket prices?

Also, the levelling effect of "it's coming out on video in 4 months" probably plays in; for parents with children diapers, the videotape in 4 months is a massively persuasive substitute good for the cinema tonight, whether the movie is for the parents or for the kids. (I speak upon personal knowledge on this point only.)

I suspect strongly that cinemas are skilled at maximizing their net revenue. A multibillion dollar industry has plenty of economists, MBAs and mathematicians on hand, both formally trained in grad school and informally trained behind the ticket window. The market is not infinitely wise or efficient, but a more efficient price structure discovered by even one competitor in a given market would tend to pull competitive pricing in its direction, up or down.
 
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