Cinema goes feel pinch of ticke price hike

Cinema goers feel pinch of ticket price hike
http://www.straitstimes.com/Latest%2BNews/Singapore/STIStory_221403.html

SALES executive Pearlyn Lee is feeling the pinch of the latest rise in movie ticket prices.

The mother of two children, aged seven and 10, says that most families would only have time to watch a movie together on the weekends.

But that is when the price of a ticket is the highest -it can go up to $10.50. There is also the Internet and phone-booking charge which adds $1 to the total cost.

Comment: This shows that there is a rise in price of movie tickets. Output however, does not decrease as movie theatre seats remain the same. Hence audience filling up the seats and ticket issued out will still stay the same. Demand may decrease as it faces a rather price elastic curve since there are plenty of substitues e.g. other movie theatres, consumers can wait for the movie to appear in DVD, or consumers can turn to online movies, albeit illegally.

For her family of four, a weekend movie outing will cost $43. At such a price, the 35-year-old says that the cinema should throw in free drinks and snacks.

'The price increase kills our viewing pleasure in the cinema.'

Comment: Due to rise in price of movie tickets, consumer surplus decreases and demand is likely to decrease too.

Two months after Cathay raised its prices by between 50 cents and $1, Golden Village upped its ticket prices by 50 cents on Thursday.

GV last raised prices - together with Shaw and Eng Wah - in May 2005.

Comment: Firms in the movie industry makes use of cross-elasticity concept to a certain extent so as to decide on whether to raise prices when rival firms raise their price. E.g. when Cathay raised its price, Golden Village decided to raise its price too. However CED is not useful in helping the cinemas decide on how much they should raise the price to stay competitive. Thus cost is not considered or factored in when using CED.

Comment: Singapore also faces an oligopolistic cinema industry as there are only a few large cinemas dominating the market, namely Shaw, Eng Wah, Golden Village and Cathy with Golden Village with the biggest market share.

Asked why it raised ticket prices, its managing director David Glass cited 'rising business costs, goods, services, labour and film rentals'.

Comment:

• Rise in average cost and marginal cost due to
• 'rising business costs, goods, services, labour(average variable costs) and film rentals.(average fixed costs)'.

Average cost curve shifts up thus marginal cost curve also shifts up.

The GV cinema chain - with nine cineplexes and a 47 per cent share of the market - was not able to provide a breakdown of costs by press time.

But according to the Cathay website, 35 per cent of a ticket's cost goes to operating expenses and 47 per cent to film rentals.

Comment: We can see that set up costs/fixed costs is high as film rentals takes up almost half of the firm's revenue. Hence depending on how the demand curve shifts, the firm's profit will either

• increase, if demand curve stays stagnant(possibly due to various rather price-inelastic movie, e.g. blockbusters)or even better, shifts to the right. Firm will enjoy even more supernormal profits than before.
• decrease, if demand curve shifts to the left drastically, so much so that the decrease in demand is more than the rise in AC and MC.
• stay the same, if demand curve's change is able to cover the rise in AC and MC.

Suggestions: Cinemas can use 2nd or 3rd degree price discrimmination to attract a larger crowd. E.g. Golden Village has student and senior citizen prices. Cathy allows babies on arms to go into the cinema free of charge.