The Revenue Impact of Differential Seat Pricing and Competition in the Movie Theater Market

Abstract

This study empirically investigates the revenue return to differential seat pricing in the Korean movie theater market and how it is affected by competition. In March 2016, one of three major multiplex chains in the market divided the seats in most of its screening auditoria into prime (high-quality), standard (medium-quality), and economy (low-quality) zones, and started charging different prices for each seating zone. For the analysis, we construct a unique dataset that contains ticket prices and the number of tickets that are sold at the show level. We find that differential seat pricing increases revenue on average by 10.6%, but does not affect the number of tickets sold. Based on the results, we suggest that in a situation in which a large number of seats remain unsold, the pricing scheme involves encouraging the sale of the prime zone seats by increasing their price only slightly. By measuring the degree of competition as the number of showings of the same movie that are played by neighboring theaters at a similar time, we also find that competition has a small negative effect on the revenue gain from differential seat pricing. This finding may be explained by switching costs that are due to moviegoers’ being away from preferred theater locations and showtimes.