Regulating cinema ticket prices

The High Court of Kerala has shot down a decision of the State Government to permit cinema theatres to charge 50% more on tickets for the first three days of a latest all-star blockbuster movie (twenty-twenty). This otherwise obscure news item highlights a couple of interesting issues. Why is government administering cinema theatre prices? What is the judiciary's role in regulating cinema ticket prices? Is anybody's human rights being abrogated or violated by the government decision?

The first few days of any blockbuster cinema release, especially those involving the major stars, is invariably accompanied by a mad scramble for cinema tickets and the proliferation of a lucrative black market, where the tickets change hands at many times the actual price. The result is that black marketeers, often in collusion with the theatre owners, make a killing; cinema goers are harassed; the government loses entertainment tax revenues; and the black marketeers engender a culture of fraud and violence around the theatres. The incentive distortions are too obvious.

Econ 101 teaches us that cinema goers have differential utilities attached with viewing a cinema, and therefore would be willing to pay varying amounts as ticket prices. The differential willingness to pay is especially pronounced in case of cinema tickets in the first couple of days of the release. It is therefore economically efficient to permit the theatre owners to capture this variation in willingness to pay through a differential pricing arrangement.

By bringing in only those who are willing to pay the higher prices in the first few days, it will be possible to control the black market in tickets, get more people to visit cinemas in a phased manner (afterall many people do not visit cinemas for the hassle of standing of ques and uncertainty surrounding getting a ticket), and increase the entertainment tax revenues for the government. Since the ticket prices can be restored back to their regular price, or even lower, after the first few days, nobody is denied the pleasure of watching the movie.

A price differentiation strategy benefits the larger economy in other ways too - cinema theatre owners will get more money and hopefully set up more theatres, railway and bus operators get more money and may operate more services, caterers and other franchises in the theatre will make more moeny and hire more people, and total opportunity costs of waiting times in ticket ques will be reduced. Therefore, the answer to the questions raised at the beginning appears to be obvious. Two critical organs of government appear to be wasting their valuable time in deliberating on misplaced priorities!

This issue of differential willingness to pay has been dwelt with at length here, here, and here.