Should you pay more to see a blockbuster film during the Christmas holidays when movie going peaks? Less for an obscure foreign film? More on Saturday and at 7 pm? Less on Tuesday and 11 am?
The issue is variable pricing. In this paper, several researchers suggest that “one price fits all” no longer makes sense for movie tickets. Their ideas are discussed here in an Atlantic article with several fascinating graphs about our movie going habits.
And, here (Israeli congestion pricing), here (baseball games and airlines), here (a Chicago restaurant) and here (Broadway tickets), econlife.com looks at variable pricing elsewhere.
Our bottom line: Now that we have the technological capability to variably price, should we?
The Economic Lesson
Variable or dynamic pricing is all about price elasticity of demand. If price changes a lot and the quantity we buy remains almost the same, as with medication, then our demand is inelastic. By contrast, if price swings have a big impact on buying, then our response is elastic.
With movie tickets, certain consumers have an elastic response to lower prices; when price descends they see many more films. Meanwhile, others whose demand is inelastic respond minimally to price changes. Awareness of price elasticity of demand could generate more revenue for movie theaters and savings for consumers.
An Economic Question: Depending on the movie, the time, the day and the season, how would higher and lower prices affect people with elastic demand? Inelastic demand?
Following up on yesterday’s post, I discovered how important product placement can be. Sometimes movie makers decide the products beforehand, before they even complete the script and select the stars. Fees for a “starring” product can total millions.
Up in the Air? Including Hilton HHonors Diamond V.I.P. meant free rooms. But meanwhile, Hilton oversaw accuracy for their uniforms, service, details. For its participation, American Airlines helped to market the film.
The 28th Amendment? Movie makers were contemplating where to insert a fast food scene before the scene was written. (Film has not been completed.)
Wearing economic glasses as you watch your next movie or TV show, you might get some extra insight if you watch for product placement.
The Economic Lesson
If profit equals total revenue minus total cost, then product placement certainly helps the bottom line. Also though, we should not forget the opportunity cost of these profit generating decisions. Is artistic quality influenced?
From a Forbes.com, 2006 reader survey, the 10 best money movies:
- Wall Street (1987; 35% of votes)
- Trading Places (1983; 10% of votes)
- The Sting (1973; 6% of votes)
- Ocean’s Eleven (1960; 5% of votes)
- Boiler Room (2000; 5% of votes)
- It’s a Mad Mad Mad World (1963; 4% of votes)
- Casino (1995; 4% of votes)
- Glengarry Glen Ross (1992; 4% of votes)
- The Treasure of the Sierra Madre (1948; 4% of votes)
- American Psycho (2000; 3% of votes)
Posted by: adminEcon
Tags: financial markets, movies