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    Pricing Strategy For a Monopolist Movie Theater

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    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." Comment on this strategy. How might the market power of QuadPlex Cinema be measured? Also recommend the options that QuadPlex consider in the long run. Fully explain your answer in terms of market power

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    Solution Preview

    The manager's strategy is too simplistic. Even though QuadPlex is the only theater in town, consumers still have a choice: to buy tickets or to NOT buy tickets. If he raises ticket prices he will sell fewer tickets and his profits could actually decrease.
    Quadplex's market power can be measured by ...

    Solution Summary

    If there is only one movie theater in town, does that give the manager unlimited market power to raise prices? How can the manager use market power to maximize the theater's profits?

    $2.19