A Reminder That Prices Are Based on Value, Not Cost

Not long ago, George Lucas predicted that movie tickets will one day cost $150. Two professors from Northwestern’s b-school think this is high comedy.

Going to the movies, almost by definition, is a casual night out. You don’t need to dress up, and the price of tickets is low enough for most teenagers to afford. But will the movies always be relatively affordable? Not everyone thinks so.

In fact, George Lucas — legendary director of the Star Wars franchise — recently predicted that tickets will get much more expensive. Rakesh Vohra, a professor at Northwestern’s Kellogg School of Management, finds the assertion laughable. Vohra explains on his blog:

“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 Hitchhiker’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.”

In other words: If the day of $150 movie tickets ever comes, it won’t be because the movie cost hundreds of millions to make. It will be because moviegoers believe that $150 is a worthy price for a few hours of air-conditioned escapism.

Will that day ever come? Maybe. There just won’t be many teens in the audience.


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