Disney, Theater Operators Battle Over New 'Avengers'
by: Erich Schwartzel
May 05, 2015
Click here to view the full article on WSJ.com
TOPICS: Contracts
SUMMARY: A movie-theater trade group says owners aren't happy Disney imposed new conditions on venues seeking to show the latest "Avengers." Among the changes: when cinemas can offer matinee discounts or alternate showings of "Avengers" with other movies on the same screen; and new payment rules that the National Association of Theatre Owners said could over the long term raise prices for everyone.
CLASSROOM APPLICATION: Students can evaluate whether Disney's proposed box office revenue sharing arrangement would lead to higher movie ticket prices and whether Disney's higher share of box office revenues is due to the studio's increased market power. The article notes an interesting issues relevant to optimal ticket pricing. To sell complementary goods -- popcorn and soda -- theaters have an incentive to lower ticket prices.
QUESTIONS:
1. (Introductory) Does the article offer evidence that Disney's market power has increased?
2. (Advanced) A NATO letter to Disney notes "illegal vertical price fixing under state and federal antitrust laws." What is vertical price fixing? Is it possible that Disney's proposed contract with theater operators could result in higher movie prices?
3. (Advanced) Why would Disney want matinee prices to end a time earlier than the one preferred by theater owners?
4. (Advanced) How do concession sales affect the profit-maximizing ticket prices set by theater operators?
Reviewed By: James Dearden, Lehigh University
labels: Vertical relationships, pricing
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