My colleague James Schummer was kind enough to point me to the following news item, which quotes George Lucas as predicting that one day a cinema ticket will cost $150. Mr. Lucas and (and Mr. Spielberg) believe that the movie industry will, over time, concentrate on big budget productions and these will cost more to see in the cinema. Indeed, one senior equity analyst at Morningstar is quoted as saying:
differentiated pricing according to the movie’s budget makes economic sense.
I think this is the sentence that caught my colleague’s eye.
He and I teach a class on pricing. In it we emphasize the simple point that fixed costs are irrelevant for deciding the price. If I could repeat this FACT in large friendly letters like the warning on the Hitchiker’s Guide to the Galaxy, I would. So, the idea that a movie’s budget should determine its price is not merely wrong but risible.