QuadPlex Cinema is the only movie theater in Idaho Falls. The nearest rival movie theater, the Cedar Bluff Twin, is 35 miles away in Pocatello. Thus QuadPlex Cinema possesses a degree of market power. Despite having market power, QuadPlex Cinema is currently suffering losses. In a conversation with the owners of QuadPlex, the manager of the movie theater made the following suggestions: “Since QuadPlex is a local monopoly, we should just increase ticket prices until we make enough profit.”
a. Comment on this strategy. Will it work?
b. How might the market power of QuadPlex Cinema be measured?
c. What options should QuadPlex consider in the long run?
a. Comment on this strategy. Will it work?
Increasing ticket prices as a strategy to make enough profit for QuadPlex Cinema may not necessarily work. While QuadPlex has market power as the only movie theater in Idaho Falls, there are a few factors to consider. First, increasing ticket prices might lead to decreased demand for movie tickets. If customers find the ticket prices too high, they may choose alternative forms of entertainment or opt to travel to the Cedar Bluff Twin in Pocatello. Additionally, the presence of streaming services and online platforms offering movies and TV shows can also provide competition for QuadPlex Cinema. Therefore, simply increasing ticket prices may not guarantee a sufficient increase in profit.
b. How might the market power of QuadPlex Cinema be measured?
The market power of QuadPlex Cinema can be measured using various strategies. One approach is to evaluate the market share of QuadPlex Cinema by comparing its revenue or ticket sales to the total revenue or ticket sales of all movie theaters in the Idaho Falls area. A higher market share indicates more market power. Additionally, conducting consumer surveys or analyzing customer preferences can provide insights into the market power of QuadPlex Cinema. If customers perceive QuadPlex Cinema to be their primary or only option for movie-watching, it suggests a higher degree of market power.
c. What options should QuadPlex consider in the long run?
In the long run, QuadPlex Cinema should consider several options to address its current losses. First, they could explore improving the quality of their movie-watching experience by investing in better seating, sound systems, or larger screens to attract more customers. Additionally, they could focus on providing a wider variety of movie options and scheduling special events or themed movie nights to increase customer appeal. Another option could be diversifying their offerings by incorporating additional entertainment options, such as arcade games or a concession stand with a larger variety of snacks. Lastly, QuadPlex could also consider partnering with local businesses or organizations to cross-promote events and attract a larger customer base. It is essential for QuadPlex Cinema to adapt to changing market conditions and consumer preferences to remain competitive and profitable in the long run.