Cineplex and Empire are two rival movie theatre chains. They must each decide whether to set an admission price of $10 or set an admission price of $12; of course, the number
of movie goers (and thus their revenues) will depend both on the price they set as well as the price charged by their competitor. Their profit levels are given in the matrix below.
Ciniplex
$10
$12
Empire
$10
High Consumer
Demand
E: $7 Million
C: $7 Million
Medium Consumer
Demand
E: $8 Million
C: $8 Million
$12
Medium Consumer
Demand
E: $6 Million
C: $8 Million
Low Consumer
Demand
E: $7 Million
C: $7 Million
a) If Empire and Cineplex could cooperate, which set of actions would generate the highest
industry profit? Is that outcome likely to be achievable?
b) What is Empire's best action(s)? Does it depend on Cineplex's action?
c) What is Cineplex's best action(s)? Does it depend on Empire's move?
d) If Cineplex and Empire cannot cooperate, what outcome(s) would occur? Is there a difference
between the cooperative and non-cooperative outcome?
Cineplex and Empire are two rival movie theatre chains. They must each decide whether to set an admission price of $10 or set an admission price of $12; of course, the number
of movie goers (and thus their revenues) will depend both on the price they set as well as the price charged by their competitor. Their profit levels are given in the matrix below.
| Ciniplex | |||
| $10 | $12 | ||
| Empire | $10 |
High Consumer Demand E: $7 Million C: $7 Million |
Medium Consumer Demand E: $8 Million C: $8 Million |
| $12 |
Medium Consumer Demand E: $6 Million C: $8 Million |
Low Consumer Demand E: $7 Million C: $7 Million |
a) If Empire and Cineplex could cooperate, which set of actions would generate the highest
industry profit? Is that outcome likely to be achievable?
b) What is Empire's best action(s)? Does it depend on Cineplex's action?
c) What is Cineplex's best action(s)? Does it depend on Empire's move?
d) If Cineplex and Empire cannot cooperate, what outcome(s) would occur? Is there a difference
between the cooperative and non-cooperative outcome?
Related textbook solutions
Related questions
A movie cinema has identified two groups of customers in the market: students and adults. To gain a concession students just have to show their student card when buying a ticket. Each ticket costs the cinema $4 regardless of whether it is to a student or an adult. Use the following two tables to answer each part of the question below:
Adult Buyers Students
|
Price |
Quantity |
Price |
Quantity |
|
|
20 |
2 |
12 |
1 |
|
|
18 |
4 |
10 |
2 |
|
|
16 |
6 |
8 |
3 |
|
|
14 |
8 |
6 |
4 |
|
|
12 |
10 |
4 |
5 |
|
|
10 |
12 |
2 |
6 |
|
|
8 |
14 |
|||
|
6 |
16 |
|||
|
4 |
18 |
|||
|
2 |
20 |
|||
a) Explain what direct price discrimination is.
b) What is the effect on producer surplus, and consumer surplus from the practice of price discrimination?
c) What prices will the cinema charge to maximize profit for adults and students each?
d) Calculate the consumer surplus to adults and students separately when the business uses price discrimination.
e) Calculate the consumer surplus when the business does NOT use price discrimination (Hint: combine the demand curves from both high and low-value customers)
