Question

1. Suppose that a movie production company has produced two movies, A and B, and distributes them to theaters with willingness to pay for the two movies, which is shown below,

	Movie A	Movie B
Fox Theater	$135	$95
York Theater	$85	$115

Is block booking more profitable than charging a single price for each movie? Explain.

Answer 1

Block booking, i.e., bundling the two movies together will lead to a better outcome. Let's see how:

If the two movies are priced individually, the price needs to be the lower of the two ticket prices for each movie across the two theatres. To be specific, Movie A will be priced at $85 and Movie B at $95, resulting in a total price (sold separately) of $180.

On the other hand, when we bundle the bundle will be priced at lower of:

Fox: $135+95 = $230, and

York: $85+115 = $200

The bundle will be priced at $200 adn hence $20 more profitable than selling the movies separately.