Supply and Demand Don't ALWAYS Explain Things...

Regular readers will know that supply and demand forces are leaned on heavily by BlawgConomics as the explanation for many a phenomenon in life. However, supply and demand can't explain everything, and in some situations a normal person with an ounce of common sense can explain the real world better than a pseudo-academic with a pound of Econ 101 knowledge.

So is the case with a recent article from Derek Thompson in The Atlantic. In the article 'Why Do All Movie Tickets Cost the Same?' Thompson takes a look at the fact that movies like Spiderman and Mission Impossible are no more pricey to see than your average flop and suggests some interesting reasons why. This will be an interesting read for anyone who appreciates the Freakonomics approach to economics, particularly passages such as the following:

Cheaper tickets lead to higher policing costs. I'm a cheapskate, so I might buy a ticket to see cheap, cheap Iron Lady and sneak into Sherlock Holmes. This would create a fascinating incentive for art-house studios to release smaller, cheaper films the same weekend as blockbusters, knowing that thousands of canny consumers might buy fake tickets to their show to sneak into the more expensive blockbuster.

Tip of the cap to S.W.


  1. Anonymous5/1/12 12:49

    The excerpted passage denies reality - "second run" theaters all over the country (my fave is West Boylston cinema near Worcester, MA) charge less money for admission. I've never heard of anyone using a "fake" West Boylston ticket to sneak into nearby Showcase Cinemas Worcester North. Where are the "thousands" of canny (crooked) customers?

    Plus, price discrimination already happens as a percentage of the ticket. Studios take a bigger percentage opening weekend, and they negotiate a bigger cut and smaller fall-off in subsequent weeks for certain films considered guaranteed hits (the Star Wars prequels, for example, were very successful at this).

    Why isn't that price discrimination passed on? Because as everyone but Derek Thompson knows, theaters make all their money on concessions. They don't need to drive movie-goers to higher-percentage films; they just need them to sit in the theater long enough to get thirsty.

  2. Thanks for the thoughts.

    I believe that the excerpt (at least as I read it) had to do with buyers using tickets at the same theater...but I could be wrong. The use of the word 'fake' certainly does create some ambiguity.

    As far as your other comments, I agree with you that price discrimination occurs through negotiation currently. I also agree that concessions are a critical part of theater profits.

    However, I still think that there could be some room for variable pricing which would benefit both the studios and the theaters. I imagine both interests would be happy if they could charge $3 more on an opening weekend, bigger cut and concession income notwithstanding.

    Therefore, I do believe that there is something to Thompson's analysis, even if his specific underlying reasons for increased demand not driving up prices don't provide an entirely sufficient explanation.