Thursday, March 1, 2012

Should Cinemas Raise Prices for Oscar-Winning Movies?

That is the question asked by Rafi Mohammed. The answer is, only if demand increases relative to supply for those movies.

That is basically the conclusion Mohammed came too. He also noted the entrepreneurial facet of product pricing.
While I am a big proponent of setting prices to capture value, in this instance I’m wary of raising prices. Consumer sentiment regarding cinema prices is akin to a tinderbox waiting for the spark to flare up. Why? Consumers can easily calculate the premiums they are paying to enjoy the cinema experience. Instead of paying $11 per-person at the box office, they know that in a few months they’ll be able to rent the DVD at Redbox for a buck or so. Similarly, they know that concession-priced popcorn, candy, and soda can be purchased for a fraction of the cost elsewhere. A $35 night at the movies can be replicated at home for $5 or so.
If Oscar-winning movies did actually experience an increase in demand, however, the marginal consumers would be willing to pay the higher price.

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