Suppose that you own a 25 year old movie theater in Micropolis. It has 6 screens and a concession stand. Across town there is a 7 year old movie theater with 4 IMAX screens and 20 more regular screens. Your competitor’s movie theater also has stadium seating for all screens and two concessions stands. Remember this is a small to mid-sized city with a small to moderate sized customer base.
A. Price Discrimination:
Define price discrimination. Describe a price discrimination strategy that you could use at your movie theatre (you must come up with a real-world strategy for this answer). How can you possibly earn extra profits by charging some customers a lower price instead of charging all customers a high price?
B. Product Differentiation and Advertising:
Define product differentiation. Describe an advertising strategy that you could use to differentiate your movie theatre. What is the benefit for firms with differentiated products?
C. Barriers to Entry:
What are some potential barriers to entry for another movie theater to entering this market? Do you think that they are sufficiently high to keep a third firm from entering this market?