In almost all countries around the world, full price(i.e.adult)cinema ticket prices are
largely uniform across films and sessions at a given cinema, as well between cinemas Given
the lack of variation in price, this implies that it is almost impossible to estimate demand
elasticities. However, some counties (including Australia) offer discounted prices on a
weekday where all ticket prices are reduced for the entire day. Using the fact that
Australian cinemas typically discount ticket prices on Tuesdays, a recentacademic study has
estimated own-pricecinema demand elasticity to be about 2.5 in Australia.
Discuss the following:
a)Explain what implications the study?s finding of own-price elasticity of demand being
approximately 2.5 has for ticket pricing if the marginal cost of an extra cinema dmission is
close to zero.
b)While there is typically no variation in price between films and across sessions at a
given cinema,typically cinemas offer different prices for ?adult?, ?student?, ?child
and ?senior?tickets. Discuss this type of pricing strategy and what conditions are
necessary to successfully operate such a strategy.
c)cinemasalso make large amounts of money from ancillary sales?in particular,?combos? of
pop -corn and drinks. Discuss what conditions are necessary for this bundled pricing
strategy to be profitable.
d)Some cinemas offer consumer loyalty programs (e.g. Greater Union?s Cinebuzz) where cinema
-goers earn points which can be redeemed for free movies. Discuss this sort of pricing
strategy and how it might increase profits.
Suggested reading: Orbach, B. andEinav, L. 2007, ?Uniform Prices for Differentiated Goods:The Case of the Movie-Theater Industry?,International Review of Law and Economics, vol.27, no.2,pp.129-153
Referencing should be in Harvard referencing style.