Working Paper: CEPR ID: DP16113
Authors: Pascal Courty; Dapeng Liu
Abstract: We strongly reject the hypothesis of theater design revenue neutrality. Instead, we find large increasing returns in revenue from adding auditoria up to 9 auditoria, increasing returns from adding seats up to an intermediate seating capacity of about 120 seats, beyond which decreasing returns prevail, and a large revenue premium to having an Imax auditorium. These revenue gains are largely due to differences in capacity utilization rates, and to a lower extent to differences in screening intensity (more showings per screen), while price differences play a negligible role. We discuss various mechanisms that may rationalize deviations from theater design neutrality. We conclude that a large fraction of theaters have too few auditorium and too many seats per auditorium, although this is less so for recently built theaters. These violations of profit maximization are likely explained by the long term, irreversible, and risky nature of theater design choices.
Keywords: theater; movie exhibition; increasing returns; imax premium; china; theater design; screening intensity; seat utilization rate; spillovers
JEL Codes: D2; L1; L82; Z11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| number of auditoria (M42) | revenue (H27) |
| number of auditoria (M42) | capacity utilization rates (L97) |
| number of auditoria (M42) | screening intensity (I12) |
| seating capacity (D24) | revenue (H27) |
| IMAX auditorium (Y91) | revenue (H27) |
| capacity utilization rates (L97) | revenue (H27) |
| price premium (D49) | revenue (H27) |