• Introduction
• Analyze the market before the COVID-19 pandemic. Describe how the pandemic affected the movie theater industry.
• Explain price discrimination in the movie theater market.
• Movie theater employees are generally paid hourly. Design an incentive pay structure for AMC Theaters and explain how it would work.
• Apply the concepts of economies of scale and economies of scope to AMC Theater's business model
• Apply the concepts of game theory to short selling and meme stocks as it relates to AMC Theaters
• Assess AMC Theater's potential for international expansion and potential trade policy issues.
• Explain the asymmetric information issues that lead to short selling and meme stocks.
• Apply the concepts of moral hazard to short selling and meme stocks, using AMC as an example.
• Conclusion
Market Analysis and the Impact of COVID-19
Before the COVID-19 pandemic, the movie theater industry was a mature market characterized by steady, albeit slow, growth. The primary business model was straightforward: sell tickets for new film releases and generate significant revenue from high-margin concessions. Major chains like AMC, Regal, and Cinemark dominated the landscape, competing on factors like location, screen quality (e.g., IMAX, Dolby), and loyalty programs. The industry was already facing challenges from streaming services like Netflix, but the theatrical experience—communal viewing on a big screen—remained a strong draw.
The COVID-19 pandemic was a catastrophic event for the industry. The mandated closure of theaters and the subsequent shift of major film releases to streaming platforms caused a near-total collapse in revenue. This forced companies like AMC to take on significant debt to survive, and it fundamentally altered consumer behavior, accelerating the adoption of in-home entertainment. The pandemic demonstrated the industry's vulnerability to external shocks and its dependence on a steady supply of new, high-quality content.
Price Discrimination in the Movie Theater Market
Price discrimination is the practice of charging different prices to different customers for the same product. Movie theaters are a classic example of this. They use various methods to segment their market:
Time-based pricing: Charging higher prices for evening and weekend shows (peak demand) and lower prices for matinee shows (off-peak demand). This captures a different consumer segment, such as retirees or students with flexible schedules.
Demographic-based pricing: Offering discounted tickets to specific groups like seniors, students, or children. This targets price-sensitive segments that might not otherwise attend.
Product-based pricing: Charging different prices for different formats, such as standard screens, 3D, IMAX, or Dolby Cinema. This caters to different consumer preferences for quality and experience.
This strategy allows theaters to maximize their total revenue by selling tickets to a broader range of consumers, each at a price they're willing to pay.
Sample Answer
The Movie Theater Industry: A Business and Economic Analysis
Introduction
The movie theater industry is a fascinating business model that relies on consumer discretionary spending. This analysis will explore various economic principles, including market dynamics, pricing strategies, and incentive structures, as they apply to AMC Theaters, a major player in the sector. We'll also examine how the COVID-19 pandemic reshaped the industry, and apply concepts from game theory and asymmetric information to understand the unique phenomena of short selling and meme stocks.