WHY ARE BEVERAGES PRICED HIGH IN CINEMA HALLS - AN ANALYSIS OF STRUCTURED COST DIFFERENTIATION

Bhaskar Narasimha Rao Garimella

Abstract


Cost prices for physical products such as ink for printers and discount coupons / Membership cards at movies are often set well above cost. This paper empirically analyzes discount coupon sales data from a chain of Indian theatres to illustrate that hiked prices on concessions reflect a profitable price discrimination strategy often referred to as “Structured Cost Discrimination.” Discount Coupons are found to be purchased in greater amounts by customers who place greater value on attending the theatre (PVR Multiplex or iMax Screens). In other words, the intensity of demand for admission is “Structured” by discount coupon sales. This asserts the belief that while some consumers’ surplus may be limited by high concession prices, surplus of other consumers on the margin of attending may tend to hike from the theatres’ decisions to shift their margins away from movies and toward membership cards/concessions.

This paper is based on a presumption that these venues exploit the fact that customers have little if any choice between membership sellers. While this presumption is probably accurate, it is important to recognize that high concession prices might reflect the decision of the venue to shift profits from admission tickets to membership schemes. This strategy has been termed structured cost differentiation because the surplus collected from a customer is “structured” by how much of the aftermarket “Product” they demand. This paper describes the motivation behind our stochastic analysis, describes the data of 47 movie theatres and discusses our statistical approach.

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ISSN : 2251-1571