Bryan Caplan  

Peak Load Pricing at the Movies

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Whenever I'm stuck in a line, I grumble about the need for peak load pricing. Raise the price during popular times, cut the price during off-times, and watch the world's blood pressure fall.

At the same time, however, I understand why businesses are reluctant to adopt peak load pricing - most of their customers aren't economists, and non-economists feel that peak load pricing is "unfair." The customer is always right, even when he's not.

What I can't figure out, however, is why some businesses have peak load pricing, but don't get the peaks right. Movie theaters are the clearest example. Yes, they've got expensive evening shows and cheap matinees, and the crowds are bigger in the evenings. So far, so good.

However, as a constant movie-goer, it's obvious to me that weekend matinees are a lot more crowded than weekday evenings. If you want to stick with two simple prices, it seems more sensible to have peak pricing all day on Friday, Saturday, and Sunday, and discount pricing all day on Monday through Thursday. The only drawback is that this might shift weekend matinee viewers to weekend evening shows, so perhaps theaters really need three prices - weekend evening, weekend matinee, and weekday.

In the spirit of Ayres and Nalebuff, I'm asking "Why not?" You tell me.

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COMMENTS (18 to date)
spencer writes:

One of the chains here in the Boston area tried it for about a year with discounts on Tuesday.

My wife is off on Tuesday so that is usually when we go.

I did not observe a significant change in the number of tuesday movie goers.

They ended the experiment several months ago.

I would guess because it did not work.

Thomas B. writes:

Here in Kansas City, the local AMC has also tried a discounted price during the week, on Wednesdays. My AMC stopped it's experiment too.

Now it's added a new pricing tier. On Sundays before noon, all shows are only $4.

$4 is a really great price for opening weekend movies, especially compared to what I hear folks are paying on the coasts. All the same, those shows still tend to be empty.

John writes:

The customer and business may indeed be responding to pricing correctly and customers may not feel that peak pricing is "unfair".

Theaters, like all businesses, will set prices to maximize revenue/profit. Increasing prices during high demand may decrease profit if other forms of entertainment are substituted. Likewise, decreased prices during off-peak may not increase attendance substantially (as customers have other priorities during the week such as work, children, school, etc.) and thus lower profit.

John Thacker writes:

However, as a constant movie-goer, it's obvious to me that weekend matinees are a lot more crowded than weekday evenings.

But what's the composition of the crowds? It may be that weekend matinees have a lot of students, senior citizens, and families with children, all of whom may have higher elasticity of demand for movies. Lower weekday evening prices may not draw the senior citizen, families with children, or student (school night) demographics so much.

In other words, the different prices could be because daytime and evening crowds are already two different market segments, rather than due to a form of peak load pricing.

Fazal Majid writes:

Differentiated pricing creates additional mental transaction costs for the customer, which make the service less attractive. Given the competition to theatres from DVD rentals and large-screen home cinemas, they really don't need to shoot themselves further in the foot.

The box office ticket probably does not represent nearly as big a portion of revenues as you think, compared to concession stands and pre-show advertising.

Asa writes:

At Landmark Theatres in Seattle only the first show of the day is the "matinee" price, the rest are the higher "evening" price. They used to do this seven days a week, but, and I suspect due to customer input, that rule now only applies on Saturday and Sunday. Midweek, all shows before 6PM are discounted, which is similar to other theaters in town.

But for argument sake, suppose a movie theater did institute higher prices during peak demand hours, like Saturday and Sunday. How would you respond to someone that said that would mean that now only rich people can go to the movies on the weekend?

Andrew Marx writes:

And why, for that matter, does the price of admission for every movie at a given theater need to be the same? Why not tack on a $0.50 premium for opening weekend features? Why not discount movies that aren't performing well (even before they're relegated to the dollar theater).

Although weekend matinees tend to be crowded, I suspect that the discount tends to thin out the evening crowds just a little.

Carl Marks writes:

In Mexico City the movie theaters typically have 5 or 6 differnt prices, depending on time, day of week and category of person, and they have been doing this for years. Talk to Tyler Cowen, he'll probably know about this.

Of course, Mexico seems to have a tradition of differnt prices under different conditions, as can be seen in their markets.

For me personally, if I want to see a movie in the theater, the price is not all that important, and if I don't want to see a movie, I don't think I would go even if it were free.

Dr. T writes:

Some theaters have contractual agreements with distributors that mandate certain prices per ticket for evening and matinee showings, regardless of day of week. In these cases, the only options are to raise prices even higher on weekends, because they cannot lower prices on weekdays.

The downside of raising weekend prices is the risk of redirecting entertainment spending to other venues. Most theaters are multiplexes. When a popular movie draws many customers, there will not be enough tickets. Many movie-goers will choose to see a different movie rather than go away. This maximizes profits for the theater and for the distributors.

I have seen premium pricing for blockbuster movies, especially on opening weekends. This occurred for the Lord of the Rings and the recent Star Wars movies.

The theater's objective is to maximize profit -- which means setting price where marginal revenue equals marginal cost -- not to equalize attendance over various times of the week. (It takes some special assumptions for the two to coincide.) The weekend matinee people may get a lower price because their demand is more elastic.

dWj writes:

Nearly on topic: are express lanes a form of "time cost"-discrimination? Naively it seems to me that it's not going to change the resources (in terms of baggers etc.) the retailer needs; to next order, at least one effect is to increase the number of transactions per amount of merchandise sold, which can't be good. The only benefit I can think of is that it saves the time of the people who are most time-sensitive, and discriminates against those who are least time-sensitive, placing more of the time-burden on them.

But more on topic, I'm not sure theaters would want to lower prices for any show that's not regularly selling out. Maybe people who come Saturday afternoon don't mind crowds as much; this goes to the composition suggestion made above.

If lower prices on weekday nights and higher prices on weekend days results in a smoothing of moviegoers than it might be reasonable to assume that the movie theater would also need to respond with more employees on duty during those more traffic ridden weekdays. Could it be significantly harder for them to hire more laborers (typically high school students) to work those shifts? Could the increase in salary costs offset additional profits?

Kelli Duncan writes:

Are you complaining about the price or about waiting in line? Does anyone wait in line at the movies anymore? When I do bother to go to the movies, I purchase tickets online and print them out at home or at the handy little kiosks at the theater.

As some posters have pointed out, there is a price at which the consumers will choose an alternative. Unfortunately for the theaters, the alternative is not another movie time but another activity shifting revenue from the industry. So why not have a single price and deal with the inconveniences. After paying 10+GBP (almost $20) to see a movie in London this summer, it’s all relative to me.

Should theaters also price according to seasonality? Moviegoers tend to be more flexible in the summer. Should summer prices be higher than winter prices? More importantly, does the average theater operator have the skills to constantly adjust prices or even want to?

Shawn Mallison writes:

From the theaters perspective the ideal is to fill as many seats as possible. Most people understand this and the concept that theaters use peak load pricing to manage their purchasing behavior. I would guess that even if they don’t fully understand the economics and feel that the pricing is unfair they will still allow themselves to be influenced by price and they will still purchase. All that said, I agree that a more complex pricing structure could create economic benefit. Some theaters are already taking advantage of this opportunity in creative ways such as offering discounted weekday tickets to a caregiver and preschool age children. This type of marketing could cause increased demand as the movie is discussed and by creating familiarity with a theatre. If excessive demand is created add showing times and/or increase the prices!

Timothy writes:

I think something obvious is getting overlooked here. Theatres don't really make the bulk of their money off of ticket sales, the margin isn't that great because of the contracts with the distributors. So, most of their profit comes from concession sales. That gives them an incentive to get as many people in as possible, sure, but I also agree with the commenter who mentioned that the people going at off-peak times are probably the market segments that have a lower elasticity of demand anyway. You'll also notice that most theatres charge less for kids and students, people who're likely to have a higher demand elasticity.

spencer writes:

What is being overlooked is that for the bulk of movie goers the ticket price is only one, probably relatively minor, part of the total "cost" in calculating how to spend their resources -- including their own time. Why are movies crowed on weekends?
Because that is when people have free time to
"spend". At other times they have other things that are more important-- work, shopping, house cleaning, etc, etc.,etc.

Bryan's error is thinking the ticket price is the only "price" to consider in the equation.
He also needs to consider the opportunity cost of the time spent at the movie.
His analysis is too simple.

Lance F writes:

One of the previous bloggers failed to recognize the one of the important sub-groups when identifying people who have a higher demand elasticity (he stated kids and students). Younger teens view the movie theaters on Fri and Sat nights as social events. Because they are unable to get out during the week, their demand is much less elastic than that of your average college student. It also appears that younger teens spend less on complements (popcorn, drinks) so peak-pricing is even less likely to effect them.

Clint Hennessee writes:

Well personally I can not disagree with you on this blog. Your point is very accurate so instead of being a negative blog replier like MOST PEOPLE I am going to have to give you a 100% thumbs up on this. If movies were higher on the weekends it would benefit the company and allow families to come on weekdays so the children and all can come at an affordable price. Now looking at price and demand slows on an inverse outlook towards movies if the price goes up the demand is going to fall but...on the other hand would less demand but greater price equal out to higher demand lower price? I think the movie company themselves should experiment and see.

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