{"id":1873,"date":"2015-03-23T11:17:10","date_gmt":"2015-03-23T18:17:10","guid":{"rendered":"http:\/\/www.artsjournal.com\/worth\/?p=1873"},"modified":"2015-03-23T11:17:10","modified_gmt":"2015-03-23T18:17:10","slug":"dynamic-pricing-and-market-segmentation-at-the-theatre-and-the-hospital","status":"publish","type":"post","link":"https:\/\/www.artsjournal.com\/worth\/2015\/03\/dynamic-pricing-and-market-segmentation-at-the-theatre-and-the-hospital\/","title":{"rendered":"Dynamic pricing and market segmentation at the theatre (and the hospital)"},"content":{"rendered":"

\"how<\/a>This post is about theatre pricing, from a unlikely source. Today’s New York Times<\/em> has a piece<\/a> by Austin Frakt on hospital pricing, and whether and how changes in funding of patients through public sector programs might change hospital charges to privately insured patients. Mid-way through, the article looks for an analogy from the arts:<\/p>\n

The theory that hospitals charge private insurers more because public programs pay less is known as cost shifting. What underlies this theory is that a hospital\u2019s costs \u2014 those for staff, equipment, supplies, space and the like \u2014 are fixed. A procedure or visit simply takes a certain amount of time and requires a specific set of resources. Therefore, if Medicare, say, does not pay its full share of those costs, a hospital is forced to offset the loss with higher prices demanded of private insurers. …<\/p>\n

[A] weakness of the cost shifting theory is that it runs counter to basic economics. Hospitals that maximize profits, or even maximize revenue to fund charity care, would not raise private prices in response to lower public ones. In fact, such a hospital would already be charging the highest possible prices to all payers. And, instead of raising them to one insurer if another paid less, they\u2019d do exactly the opposite. Prices charged to two types of customers would move together, not in opposition, for the same reason it does so in other industries.<\/p>\n

If a theater finds that bulk ticket purchasers are unwilling to pay as high a price as expected \u2014 perhaps because demand by tourist groups and corporations is down \u2014 it wouldn\u2019t raise ticket prices for individual purchasers. Because it had filled fewer seats than anticipated from bulk sales, it would reduce prices to others in order to increase sales volume. With seats to fill, when bulk purchasers pay less, so do individual ones. Likewise, retailers charge lower prices to clear inventory, not higher ones to make up for less revenue from early purchasers. Economists have shown that the same logic applies to hospitals: They shift volume from Medicare and Medicaid to privately insured patients by lowering private prices in response to lower public ones \u2014 a spillover effect.<\/p>\n<\/blockquote>\n

On twitter, Jacob Bacharach takes issue<\/a>:<\/p>\n

\n

Theaters may offer targeted discounts to fill vacant seats, but very rare to see broad discounting across price cats. post-onsale.<\/p>\n

In fact, often see dynamic<\/strong>pricing<\/strong>: high-price seats *increase* even with low overall sales, while cheap seats further discount.<\/p>\n<\/blockquote>\n

Mr Bacharach raises an interesting point. Let’s consider two sorts of cases.<\/p>\n

First, let’s look at the example used in the Times<\/em>. Bulk sales and individual sales are fairly separate market segments. With any segmented market, optimal prices are set according to the demand conditions in each of the individual markets. If it is revealed that demand is lower than had been anticipated in one<\/em> market, it does not necessarily mean it is down in all<\/em> segments. The strategic price-setter will respond to new information in the segment where shifts in demand have been revealed, but unless that signals something about other segments she won’t change prices in other segments, where prices are already at their optimal level (note that doesn’t mean ‘highest possible prices’ as the Times<\/em> story has it – I’m not even sure what that phrase means in practical terms).<\/p>\n

Suppose I have published a textbook on arts pricing, to be sold in Australia and Canada. Suppose I discover there is a competing text in Australia for my book, specific to Australia, lowering demand for my book there. That might cause me to discount the price of the book in Australia. But unless there is news about demand for my book in Canada I have no reason to adjust my Canadian price.<\/p>\n

Second let’s consider Jacob Bacharach’s case, between high-priced seats and cheap seats. This is slightly different than market segmentation, because the demand for one type of seat is dependent in part on the quality and price of all the other sorts of seat. My willingness to pay for a seat in the orchestra section depends in part on the quality and price of balcony seats. Suppose, as an example, we thought we had the price differential set pretty well to maximize ticket revenues from a show, but balcony seats are selling less well than we had expected, while sales of orchestra seats are on target. A decision to discount balcony tickets will decrease demand for orchestra seats at current prices – customers previously on-the-fence between orchestra and balcony seats will now lean towards purchasing balcony. Other things equal, that will<\/em> lead to a decision to look at discounting all seats.<\/p>\n

So, I think Jacob Bacharach is correct to point to a flaw in the reasoning of Austin Frakt at the Times, but the good seats \/ bad seats dynamic pricing problem is not the best example to show that.<\/p>\n","protected":false},"excerpt":{"rendered":"

This post is about theatre pricing, from a unlikely source. Today’s New York Times has a piece by Austin Frakt on hospital pricing, and whether and how changes in funding of patients through public sector programs might change hospital charges to privately insured patients. Mid-way through, the article looks for an analogy from the arts: […]<\/p>\n","protected":false},"author":3,"featured_media":1876,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2}},"categories":[1],"tags":[],"class_list":{"0":"post-1873","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-uncategorized","8":"entry"},"jetpack_publicize_connections":[],"jetpack_featured_media_url":"https:\/\/www.artsjournal.com\/worth\/wp-content\/uploads\/2015\/03\/old-hospital.jpg","jetpack_shortlink":"https:\/\/wp.me\/p3dIW5-ud","jetpack_sharing_enabled":true,"jetpack-related-posts":[{"id":986,"url":"https:\/\/www.artsjournal.com\/worth\/2013\/08\/whatever\/","url_meta":{"origin":1873,"position":0},"title":"Whatever","author":"Michael Rushton","date":"August 18, 2013","format":false,"excerpt":"The Washington Post reports that Forum Theater will not charge an advance price on tickets, but instead will have audience members pay after the show, whatever amount they think is right: Michael Dove, Forum\u2019s artistic director, says that he has long been concerned about what it means to be a\u2026","rel":"","context":"In "issues"","block_context":{"text":"issues","link":"https:\/\/www.artsjournal.com\/worth\/category\/issues\/"},"img":{"alt_text":"where's my director of development?","src":"https:\/\/i0.wp.com\/www.artsjournal.com\/worth\/wp-content\/uploads\/2013\/08\/busker-300x199.jpg?resize=350%2C200","width":350,"height":200},"classes":[]},{"id":1601,"url":"https:\/\/www.artsjournal.com\/worth\/2014\/10\/jean-tirole-theory-and-application\/","url_meta":{"origin":1873,"position":1},"title":"Jean Tirole, theory and application","author":"Michael Rushton","date":"October 13, 2014","format":false,"excerpt":"Jean Tirole has won the 2014 Nobel Prize in Economics. Because he works in microeconomic theory that is not easy going for those without advanced training in mathematics or economics, his is not a well-known name outside the discipline (even econ undergrad students may not have heard of him, though\u2026","rel":"","context":"In "issues"","block_context":{"text":"issues","link":"https:\/\/www.artsjournal.com\/worth\/category\/issues\/"},"img":{"alt_text":"not an easy read, but a great book","src":"https:\/\/i0.wp.com\/www.artsjournal.com\/worth\/wp-content\/uploads\/2014\/10\/tirole-199x300.jpeg?resize=350%2C200","width":350,"height":200},"classes":[]},{"id":1018,"url":"https:\/\/www.artsjournal.com\/worth\/2014\/01\/pricing-at-the-met\/","url_meta":{"origin":1873,"position":2},"title":"Pricing at the Met","author":"Michael Rushton","date":"January 29, 2014","format":false,"excerpt":"Today the Wall Street Journal and the New York Times report on statements from the Metropolitan Opera regarding recent changes in prices and box office revenues. The WSJ reports, under the headline \"Met Opera Suffers Budget Shortfall From Pricing Backlash\": \u00a0 \u00a0 \u00a0 The Metropolitan Opera's $311 million budget fell\u2026","rel":"","context":"In "issues"","block_context":{"text":"issues","link":"https:\/\/www.artsjournal.com\/worth\/category\/issues\/"},"img":{"alt_text":"not just a theory, it's the law","src":"https:\/\/i0.wp.com\/www.artsjournal.com\/worth\/wp-content\/uploads\/2014\/01\/demand.png?resize=350%2C200&ssl=1","width":350,"height":200},"classes":[]},{"id":1425,"url":"https:\/\/www.artsjournal.com\/worth\/2014\/07\/strategic-pricing-for-the-arts\/","url_meta":{"origin":1873,"position":3},"title":"Strategic pricing for the arts","author":"Michael Rushton","date":"July 21, 2014","format":false,"excerpt":"I'm pleased to say my book on pricing in the arts has been released - Amazon link here, and Routledge link (including for ordering e-inspection copies) here. What's it all about? As I do \u00a0on this blog, I have tried to give arts managers, and students of arts management, a\u2026","rel":"","context":"In "issues"","block_context":{"text":"issues","link":"https:\/\/www.artsjournal.com\/worth\/category\/issues\/"},"img":{"alt_text":"for what it's worth","src":"https:\/\/i0.wp.com\/www.artsjournal.com\/worth\/wp-content\/uploads\/2014\/07\/my-book.jpg?resize=350%2C200","width":350,"height":200},"classes":[]},{"id":1365,"url":"https:\/\/www.artsjournal.com\/worth\/2014\/06\/dynamic-pricing-at-the-zoo\/","url_meta":{"origin":1873,"position":4},"title":"Dynamic pricing at the zoo","author":"Michael Rushton","date":"June 20, 2014","format":false,"excerpt":"The Indianapolis Zoo has adopted dynamic pricing. The policy is combined with increased differentiation in prices between low-demand weekdays and high-demand weekends, and a general increase in prices arising from the increased demand that will flow from the new orangutang exhibit. The Indiana Business Journal reports: The zoo expects the\u2026","rel":"","context":"In "issues"","block_context":{"text":"issues","link":"https:\/\/www.artsjournal.com\/worth\/category\/issues\/"},"img":{"alt_text":"come see me on a cloudy Tuesday","src":"https:\/\/i0.wp.com\/www.artsjournal.com\/worth\/wp-content\/uploads\/2014\/06\/Orangutang.jpg?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.artsjournal.com\/worth\/wp-content\/uploads\/2014\/06\/Orangutang.jpg?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.artsjournal.com\/worth\/wp-content\/uploads\/2014\/06\/Orangutang.jpg?resize=525%2C300&ssl=1 1.5x"},"classes":[]},{"id":2817,"url":"https:\/\/www.artsjournal.com\/worth\/2023\/02\/can-you-scale-the-house-at-the-movie-theatre\/","url_meta":{"origin":1873,"position":5},"title":"Can you scale the house at the movie theatre?: Updated (no, you can’t)","author":"Michael Rushton","date":"February 8, 2023","format":false,"excerpt":"US cinema chain AMC has announced it will start to have differential prices for movie seating: Three pricing tiers will soon be offered. For example, the highest-end \u201cPreferred\u201d tier are in the middle of the theaters and will be priced at a \u201cslight premium\u201d compared to its \u201cStandard\u201d tier, which\u2026","rel":"","context":"In "issues"","block_context":{"text":"issues","link":"https:\/\/www.artsjournal.com\/worth\/category\/issues\/"},"img":{"alt_text":"At the movies","src":"https:\/\/i0.wp.com\/www.artsjournal.com\/worth\/wp-content\/uploads\/2023\/02\/rose-scaled.jpg?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.artsjournal.com\/worth\/wp-content\/uploads\/2023\/02\/rose-scaled.jpg?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.artsjournal.com\/worth\/wp-content\/uploads\/2023\/02\/rose-scaled.jpg?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.artsjournal.com\/worth\/wp-content\/uploads\/2023\/02\/rose-scaled.jpg?resize=700%2C400&ssl=1 2x, https:\/\/i0.wp.com\/www.artsjournal.com\/worth\/wp-content\/uploads\/2023\/02\/rose-scaled.jpg?resize=1050%2C600&ssl=1 3x, https:\/\/i0.wp.com\/www.artsjournal.com\/worth\/wp-content\/uploads\/2023\/02\/rose-scaled.jpg?resize=1400%2C800&ssl=1 4x"},"classes":[]}],"_links":{"self":[{"href":"https:\/\/www.artsjournal.com\/worth\/wp-json\/wp\/v2\/posts\/1873","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.artsjournal.com\/worth\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.artsjournal.com\/worth\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.artsjournal.com\/worth\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.artsjournal.com\/worth\/wp-json\/wp\/v2\/comments?post=1873"}],"version-history":[{"count":3,"href":"https:\/\/www.artsjournal.com\/worth\/wp-json\/wp\/v2\/posts\/1873\/revisions"}],"predecessor-version":[{"id":1877,"href":"https:\/\/www.artsjournal.com\/worth\/wp-json\/wp\/v2\/posts\/1873\/revisions\/1877"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.artsjournal.com\/worth\/wp-json\/wp\/v2\/media\/1876"}],"wp:attachment":[{"href":"https:\/\/www.artsjournal.com\/worth\/wp-json\/wp\/v2\/media?parent=1873"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.artsjournal.com\/worth\/wp-json\/wp\/v2\/categories?post=1873"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.artsjournal.com\/worth\/wp-json\/wp\/v2\/tags?post=1873"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}