Uniform Prices for Differentiated Goods: The Case of the Movie-Theater Industry

Barak Y. Orbach, NYU School of Law
LIRAN EINAV, Stanford University - Department of Economics

Abstract

Since the early 1970s, each moviegoer pays at any given theater one price for all movies, seven days a week, throughout the year. This pricing model is puzzling in light of the potential profitability of variable pricing that corresponds to demand characteristics. Another unique observation in the motion-picture industry is the legal regime that prohibits relational arrangements between distributors and retailers (exhibitors) and allows only certain forms of spot contracts. We study the persistence of the uniform pricing regime in the motion-picture industry and argue that the extreme legal constraints on the form and substance of vertical relationships in the industry could be the prime cause of the persistence of the uniform pricing regime. We explore additional hurdles to the transition to variable pricing in the motion-picture industry and argue that these hurdles could, in principle, be individually overcome. Nevertheless, it seems that the combination of the factors has an impact on the persistence of the practice.