Managing Profitability Under Capacity Restrictions in the Entertainment Industry

In this paper, we present a microeconomic model of film consumption taking into account key factors such as a theater's capacity level, moviegoers' concerns about congestion, and decay of the movie's quality (buzz) over time. Using a game-theoretic framework, we study how consumers optimally consume when they are heterogeneous in their sensitivity to quality. Specifically, for consumers choosing to view a film in a theater, we characterize the time at which they consume. We demonstrate that the aggregate demand pattern resulting from individual consumers' equilibrium behavior is consistent with empirical observations: a convex decreasing demand pattern over time. Using our equilibrium characterization, we propose and analyze an assignment scheme that theaters can use when facing stringent capacity restrictions. In this setting, we show that theaters are strictly better off employing the scheme than under the status quo. Interestingly, we find that under some circumstances, using this scheme when faced with capacity restrictions can result in the theater being even better off than having unlimited capacity under the status quo.

Speaker Bio

Duy Dao is an assistant professor of Business Technology Management at the Haskayne School of Business. His research broadly spans the economics of software and digital goods, with interests in the economics of cybersecurity and the motion picture industry. He has published in the journals Marketing Science and Management Science. His work was nominated for Best Student Paper at the Conference on Information Systems and Technology (2016) for the paper "Market Segmentation and Software Security: Pricing Patching Rights," with co-authors Terrence August and Kihoon Kim. He is a recipient of a 2019 Haskayne School of Business Dean's Research Scholar Award and of the Dean's Award for Innovative Research in 2021. Duy received his Ph.D. in the field of innovation, technology, and operations from the Rady School of Management at the University of California, San Diego in 2017.

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