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AMC's Tiered Pricing Is An Affront To Humanity & Other Bad Takes

🍿 There'll Be No More Tears In Heaven...

Yesterday AMC Theaters announced that it was going to introduce tiered pricing based on seating for their movie showings that took place after 4 P.M. Most tickets would remain the same price, but the front row would be reduced and some of the more sought after seats in the middle would be raised. The average ticket price would go down, but negligibly. Now, as someone with a degree in Economics, I think this makes a lot of sense. AMC already does some price discrimination with show times and their Stubs memberships, and now that theaters have mostly embraced assigned seating, something like this was going to come down the pike sooner or later. Because the simple fact is that some seats are more valuable than others--as any concert goer can attest. So, from an economic perspective, this is a smart move for the theater and one that doesn't hurt movie-goers.

The internet, however, lost its collective shit.

Arguments vary. One I frequently heard is "AMC are dumb for doing this" and... come on... have a little humility, people. Just because you don't understand or agree with the reasoning, that doesn't mean it isn't solid reasoning. Whoever made this decision has a wealth of data about their customers. They do this for a living and are, presumably, reasonably good at their jobs. In fact, this pricing structure has already been piloted in a few test markets and was successful enough that they're promoting it nationwide, so it's not like this was arrived at willy-nilly. That doesn't mean it's a good decision or even the right decision, but I think we can safely say it's not a stupid one.

I've also heard that this is just price gouging by a heartless corporation preying on innocent customers. And while I agree that corporations are heartless, what exactly is being gouged here? It's not like AMC has a monopoly on movie tickets. Again, average ticket prices are staying mostly the same, and most ticket prices won't change at all. It would be one thing if AMC decided to use a surge-pricing model and cut the number of screenings, that would be price gouging. But if they did that, we'd just go to other theaters. Which is why they won't. Because market forces prevent that.

I've also heard claims that this is just ablism. And you know what? I'm going to say that this is a reasonable concern. I don't think it's the case, but it could be, conceivably. If, for example, all of the wheelchair-accessible spots happened to be in the more expensive tier, then that would be price discrimination based on a protected status, and that would be illegal. Again, I don't think that's going to be the case, but it's a reasonable concern and something to keep an eye on.

Now, I must confess, I find much of the pushback genuinely confounding. I get that most humans don't approach things from an economic mindset, but people are having a lot of emotions about this. And what I think is really at the heart of this is that people are reacting to the idea of "price discrimination" without fully grokking what it means. So, with that in mind, I think it's worth spending the rest of this essay going into what Price Discrimination is and how it's being used in this instance.

First up, a definition. Price Discrimination is simply the act of charging different prices to different customers. And let's get this out of the way up front as well: despite the presence of the word "discrimination", Price Discrimination is fine. It's neither good nor bad--that is to say, it can be used to do both good and bad things, but it has no moral component, per se.

Now, just to head off some arguments, it absolutely can be used for evil. If you are discriminating based on a protected status, that's bad. It's also illegal. You can't charge women more to use the bathroom just because they take longer. You can't charge people with mobility issues extra to offset the cost of ramps. You can't charge Jews more because you assume they are just going to haggle the price down anyway. To do so would be unethical, illegal, and definitely very bad. On a less drastic note, if a company has a monopoly on the product being sold, they can use price discrimination to gouge customers by restricting supply and extracting as much money as they can from buyers. And while that's not illegal, it's ethically dubious and bad for consumers.

But AMC is not discriminating based on protected status and they don't have a monopoly, so neither of these situations apply. And you know what? Most of the time, price discrimination is neutral-to-good for consumers. And I think that in the case of AMC's price tiers, this will net out to the positive. So let's talk about the two types of price discrimination at play.

The first is selling the front row for less. This is a no-brainer. If you've ever bought tickets online, you are aware that the front row are the last seats to sell because it's not very comfortable to be that close to the screen. I, personally, refuse to sit the in the front row, and if I have to go to a much later show to get a better seat, I will do so happily. But there is a class of viewer who generally aren't bothered by being so close: younger viewers. Teenagers are usually less bothered by sitting close to the screen, and a few of them actually like it. And one thing that younger people have in common is that they have less disposable income than adults. Movie theaters are charged by the screening, not by the ticket, so any additional seats they can sell are 100% profit. So if you can get some teens to see a movie that they might otherwise have waited to stream at home, that's just gravy. Those are tickets that probably would have gone unsold, and the marginal cost of each seat is $0, so you absolutely sell them at a discount.

The slightly more controversial choice here is making premium seats more expensive. This is what feels like gouging and what has so many people up in arms. And to understand the rationale here, let's talk about in-store coupons.

[record scratch sound effect]

Okay, let me explain. You know how manufacturers coupons work? You clip the coupon, the store discounts the price, and then the store sends the coupon to the manufacturer so they can be reimbursed. But there are also in-store coupons that are made by the store, not by the manufacturer, so they don't have to be sent anywhere. When I worked in retail, these went straight into the trash, but you still need them to get the discount. Why? Why bother making the customer go through the whole rigmarole? The answer is Price Discrimination. There are certain people who are more price sensitive, and who are willing to make the effort of clipping a coupon in order to save $.35 on peaches. These people would probably not have bought the peaches otherwise. But then there are other customers whose time is more valuable and who would rather pay full price than go through the effort of clipping coupons. With the in-store coupon, you get both sales. You get the price sensitive customer at the lower price and you get the price insensitive customer at the higher one.

What's going on with the higher tier AMC tickets is just like that, only inverted. You are capturing more money from the customers who would rather pay a little extra than put forth the effort required to get a better seat. And there is definitely effort. If it's a popular show, you either have to camp out on the website soon after tickets go on sale, or you have to go to a later show to get a good seat. And, let's be clear, price sensitive movie-goers aren't going to be thrilled about this. This does hurt them a little. They've been priced out of the best seats in the house unless they want to wait and see a discounted show later. But, as mentioned above, AMC already does some price discrimination via showtimes and their membership program. Which means that price sensitive regular movie-goers are probably already doing these things and are not being hurt very much by this if at all.

But this higher tier is good for viewers who are less price sensitive. That is, not to put too fine a point on it... people like me. I don't see many movies, but when I do, I want a good seat. I love assigned seating in theaters because it means I don't have to get there early to get a decent seat. My time is worth more to me. And if I'm already paying for the movie theater experience, I will happily pay a few dollars extra to get a good ticket if it means I don't have to buy it super far in advance or wait for a late show with fewer people.

So yes, I think this is a good thing, and I fully admit that I am being a little selfish when I say that.

See you at the movies,