The Wisdom of Crowds has a fascinating bit on movie theater prices on page 98 that I’ll quote:
One of the more perplexing examples of the triumph of convention over rationality is movie theaters, where it costs you as much to see a total dog that’s limping its way through its last week of release as it does to see a hugely popular film on opening night. Most of us can’t remember when it was done differently, so the practice seems only natural. But from an economic perspective, it makes little sense. In any given week, some movies will be playing to packed houses, while others will be playing to vacant theaters. Typically, when demand is high and supply is low, companies should raise prices, and when demand is low and supply is high, they should lower prices. But movie theaters just keep charging the same price for all their products, no matter how popular or unpopular.
[snip] “…if theaters make most of their money on concessions [they do], and their real imperative is to get people into the theater, then there’s no logic to charging someone $10 to see Cuba Gooding Jr. in Snow Dogs in its fifth week of release. Just as retail stores mark down inventory to move it, theaters could mark down movies to lure more customers.
So why don’t they? Theaters off a host of excuses. First, they insist (as the music industry once did) that moviegoers don’t care about price, so that slashing prices on less popular films won’t bring in any more business. This is something you hear about cultural products in general but that is, on its face, untrue. It’s an especially strange argument to make about movies, when we know that millions of Americans who won’t shell out $8 to see a not-so-great flick in the theater will happily spend $ or $4 to watch the same movie on their twenty-seven-inch TV. In 2002, Americans spent $1 billion more on video rentals than on movies in theaters. That year, the most popular video rental in the country was Don’t Say a Word, a Michael Douglas thriller that earned a mediocre $55 million at the box office. Clearly, there were lots of people who thought Don’t Say a Word wasn’t worth $9 but was worth $4, which suggests that there is a lot of cash being spent at Blockbuster that theater owners could be claiming instead.
Really, the theater’s blind economic ignorance is mindboggling. How many times have you heard someone say (or said so yourself), “I dunno, I’ll wait until it comes out on DVD.” And how many people have you heard complain about the prices of movie tickets these days? All of the above points make a ridiculously strong argument for lower ticket prices, especially for films that are playing to empty showing rooms, week after week.
Behold, the power of convention! Behold, the stupidity of movie industry!