Movie Prices

To price discriminate, you need a means of forcing some customers to pay more than others. Movie theaters often give discounts to students. They usually can exclude nonstudents from these discounts by requiring students to show school IDs. From personal experience I know that this doesn’t always work, however, for I have frequently been able to get a student discount by showing my faculty ID (from a women’s college!).

Why would a theater ever want to charge students lower prices? Consider: When would it be profitable to cut the price of a movie ticket by, say, $1? Obviously, reducing the ticket price by $1 would reduce your profit per ticket by $1. Cutting your price, however, would increase the total number of tickets sold. You can’t know exactly how many extra tickets you would sell if you reduced your prices, for this would depend on how price sensitive your customers are. Some customers might attend the same number of movies regardless of the ticket price. These customers exhibit very little price sensitivity. You want to charge price-insensitive customers high prices, since these high prices will not drive them away. In contrast, price-sensitive customers are greatly influenced by your prices and would be much more willing to attend your theater if you slightly lowered them. Movie theaters would like to charge price-sensitive customers less than price-insensitive customers. Alas, few customers have tattoos attesting to their price sensitivity.

Students, however, have less income on average than other movie patrons, so high movie prices are more likely to deter them from going to the theater. Although undergraduates inevitably think that they are extremely busy, they usually have more free time than most working adults do. Therefore, students are relatively more willing to travel a large distance to attend a cheaper showing of a given movie. This willingness to travel makes students particularly price sensitive and consequently worthy of receiving discounts from profit-maximizing theater owners.