Economics
Why movie prices are the same, but different for live concerts
It is a good entertainment experience to watch a film or concerts on causal occasion. However, there is an unanswered question as to why all seating prices are the same for a film in a cinema. Why don’t cinema industry set different ticket prices for different seats from the first row to the last row in a room that is available to hold almost 200 audiences? While different seating prices vary greatly for concerts, the highest prices at concerts are over hundreds of dollars more expensive than the most expensive cinema prices. So, why does the cinema industry and concert industry set a different seating price strategy? After combining my experiences and research, I think that there are four possible reasons to explain the pricing strategy for cinemas and concerts. They are transaction costs, search and information cost, enforcement cost and cost benefit analysis.
The main reasons for this puzzle can be explained by transaction cost. Obviously, the transaction costs for concerts industry are higher compared to the cinema industry. First, are like a general consumer products, while concerts reflect social status or a consumption of the arts. Everyday consumer products such as the cinema should be high quality and inexpensive and can be used for a short period of time. When a film is released, cinemas will show the film continuously during a certain period of time. The cinema industry uses this method to earn profits. Except for the midnight premiere, other times can be seen as replay and low ticket price attracts more audiences and this could compel the cinemas to set different seating price due to low transaction cost but they don’t. The transaction costs for concerts are relatively higher than cinemas. Relatively high transaction cost of concerts can be attributed to low supplies and high demands. Since concerts are live shows, the actors or performers need to spend a significant amount of time on rehearsals and practices, which is why concerts are held sometimes once in a year or two. The number of shows offered by concerts have low supplies and virtually increase the transaction costs. Moreover, because of high demands for concerts, consumers are willing to pay higher prices to enjoy a better experience. For instance in a concert venue, the seats closer to the show are more expensive than the seats farther away. Due to the difference in consumer purchasing power, in order to maximize profits, the concerts industry will set different pricing for different seating classes, hence resulting in different seating prices for concerts. Transaction costs contain search and information cost, bargaining costs and enforcement costs.
Search and information costs: Comparing the cinema industry and concerts industry, search and information costs for cinemas are less than concerts industry. The main search and information cost of cinema industry is that they are paying fees to have property rights to show the movies. These costs are enormous, but as indicated in the second paragraph, the cinema industry will show one movie for several times per day for a few weeks. Although its fixed costs are high, there are no extensive or addtional cost for the future and the number of consumers that come to the cinemas do not differ significantly. While concerts do not only have fixed cost, they also have huge variable costs, including costs of renting venues, finding sponsors, cost of searching for live bands, costumes, dancers and many other things. So when setting seating prices, the concert industry has to consider how to eliminate these costs and maximize their profits. Therefore, setting a different seating prices can be a considerable method to maximize profits due to higher transaction cost. Enforcement costs: Since the costs for separating audiences who have different seating price tickets are too high, if the cinema industry cannot guarantee that audiences sit on the right seat then a higher pricing seat will be unsold. Cinemas cannot afford to hire security per every room to check for a $6 seat, that’s why the seating price are unified for the same session because the enforcement cost for guaranteeing consumers to sit in the right seats are too high, and separating different seating price is unrealistic. For instance, usually, there are 5 to 6 different pricing levels for concerts, $68, $88, $98 for grounds, $220, and $330 for floor and $420 for VIP (the first row). There is a larger difference between $420 and $220. How will concert industry prevent consumers who have the lower priced seating ticket to sit on the higher pricing seat? The reason should be separating different entrance for different consumers who have different pricing tickets. The most important thing is to hire security to patrol and check tickets using parapets to separate different section in order to prevent some audience on sitting in higher pricing ticket areas. There is no doubt that concert industry sponsors need to spend a great amount of transaction costs on the above measures. According to the cost-benefit analysis, the measures of checking ticket pricing and seating’s has benefit to concert industry. However, using parapets to separate several small sections and hiring security (conductor) per screen in the cinema is not reasonable for the cinema industry because transaction costs are too high. First, compared to a larger venue for concerts, there is no difference in viewing a movie with a relatively smaller screen, audiences will not accept the extra cost for a small difference in viewing experience, and thus unified seating price for cinema is a wise decision. Transaction costs account for how much percentage makes an essential factor for deciding unified seating price in cinema. The enforcement cost for separating audience in the cinema is higher than the concert industry because movie ticket prices start around $6 and since the audiences are paying for the same prices why separate them or check to make sure they are in their right seats.
Comparative test: Based on my opinion, I don’t think this puzzle could be tested, since concerts have huge variable costs, while cinemas have fixed costs. If I must test this puzzle, keeping all other variables constant, considering transaction costs, enforcement costs and searching costs. Concerts accounts for a larger amount of enforcement costs and searching costs than cinema industry and thus it is a sensible way for the concert industry to separate seating prices that will make concert industry maximize profits. On the other hands, if there is no enforcement costs and searching costs that exist in both industries, the production costs for concerts will be much higher than cinema industry. Thus, regardless of transaction costs and production costs, the price for concerts will be higher than cinema industry. Separating to seating is a reasonable way for concerts to maximize their profits and they can afford to hire people to check if the audiences are in their right seats because their price ranges vary in hundreds of dollars. Cinemas cannot afford to use the same strategy because their tickets price are the same regardless of the seating.
