Will the Roxy Theater Maximize Profits by Eliminating its Student Discount?
Casenet, Southwestern College Publishing
Posted: 27 Apr 2000
SUBJECT AREAS: Price Discrimination, Excess Demand, and Applied Price Theory CASE SETTING: 1993-1997, Retail Movie Industry.
This case gives students the opportunity to apply theory of third degree price discrimination. The central question is whether management should continue to give a student discount when there is an excess demand. The Roxy Theater has had a long-standing policy of selling tickets to university students at a discounted price. Two years ago the university inaugurated a heavily subsidized student-run university film series, thereby reducing student ticket sales at The Roxy. Expecting the university subsidy to continue for the indefinite future, management responded by reducing the seating capacity of The Roxy. Two years later, much to the surprise of Roxy's management, the university abruptly discontinued the student film series because of continuing financial losses and conflicts with students running the movie series. Given the reduced seating capacity, Roxy's management now faces the prospect of a persistent excess demand for seats as students return to The Roxy since no other movie houses are nearby. Some members of Roxy's management team believe this is an opportune time to eliminate the student discount. As one member said, "Why give a student discount when all seats can be sold at the higher price?" The case asks students to decide whether The Roxy's profits will be maximized if it abolishes the student discount and thereby reduces or eliminates excess demand. This case can be used for class discussion, or in a review session, or as a take home exam.
JEL Classification: L1, L8
Suggested Citation: Suggested Citation