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Book Uniform prices for differentiated goods: The case of the movie-theater industry

Third, the demand for medical goods has increased. Consumer expenditure on these goods more than doubled between 1982 and 1986 and by 1990 had reached nearly seven times the 1982 level. Hospital and general practitioner fees are paid by the state in China, so this growth in consumer spending suggests that the people are paying increased attention to their health, and have begun to buy expensive health-related products. As a result of higher incomes, dramatic changes in the Chinese lifestyle are occurring. Chinese consumers have begun to look for convenience, variety, and natural materials. Many of. | International Review of Law and Economics ELSEVIER International Review of Law and Economics 27 2007 129-153 Uniform prices for differentiated goods The case of the movie-theater industry Barak Y. Orbacha Liran Einavb a University of Arizona Rogers College of Law United States b Department of Economics Stanford University and National Bureau of Economic Research United States Abstract Since the early 1970s movie theaters in the United States have employed a pricing model of uniform prices for differentiated goods. At any given theater one price is charged for all movies seven days a week 365 days a year. This pricing model is puzzling in light of the potential profitability of prices that vary with demand characteristics. Another unique aspect of the motion-picture industry is the legal regime that imposes certain constraints on vertical arrangements between distributors and retailers exhibitors and attempts to facilitate competitive bidding for films. We explore the justifications for uniform pricing in the industry and show their limitations. We conclude that exhibitors could increase profits by engaging in variable pricing and that they could do so more easily if the legal constraints on vertical arrangements are lifted. 2007 Published by Elsevier Inc. JEL classification D40 K21 L20 L82 M21 Z11 Keywords Antitrust Motion pictures Uniform prices Paramount decrees Vertical arrangements A dmission prices for films that are not hits and that leave theaters largely empty do not result in admission-price cutting. The exhibitors generally consider demand to be relatively inelastic. The question is whether they have tested this hypothesis with price changes for films of different quality. - Michael Conant 1 Corresponding author. E-mail addresses orbach@law.arizona.edu B.Y. Orbach leinav@stanford.edu L. Einav . 1 Conant 1981 p. 103. 0144-8188 - see front matter 2007 Published by Elsevier Inc. doi 10.1016 j.irle.2007.06.002 130 B.Y. Orbach L. Einav International Review of