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Empirical Analysis of Metering Price Discrimination: Evidence from Concession Sales at Movie Theaters

University of California, Santa Cruz, Santa Cruz, California 95064
Stanford Graduate School of Business, Stanford University, Stanford, California 94305
rgil{at}ucsc.edu
hartmann_wesley{at}gsb.stanford.edu

Prices for goods such as blades for razors, ink for printers, and concessions at movies are often set well above cost. Theory has shown that this could yield a profitable price discrimination strategy often termed "metering." The idea is that a customer's intensity of demand for aftermarket goods (e.g., the concessions) provides a meter of how much the customer is willing to pay for the primary good (e.g., admission). If this correlation in tastes for the two goods is positive, a high price on the aftermarket good allows firms to extract a greater total price (admissions plus concessions) from higher-type customers. This paper develops a simple aggregate model of discrete-continuous demand to motivate how this correlation can be tested using simple regression techniques and readily available firm data. Model simulations illustrate that the regressions can be used to predict whether aftermarket prices should be above, below, or equal to their marginal cost. We then apply the approach to box office and concession data from a chain of Spanish theaters and find that high-priced concessions do extract more surplus from customers with a greater willingness to pay for the admission ticket.

Key Words: metering; price discrimination; empirical industrial organization; entertainment; concession sales; movie theaters
History: Received: June 15, 2008; accepted: February 16, 2009.