The Price Elasticity of Demand for Theatre Tickets

Richard Monette is a world-renowned actor and dirctor; he is now the Artistic Director for the Stratford Festival. During his tenure as artistic director, the Festival has gone from being in serious financial difficulties to being a financial success.

I had the opportunity to speak with him last Friday at The University of Western Ontario, where he received an honorary doctorate. I asked him what he had done to turn around the financial fortunes of the Stratford Festival.

He replied, "I really don't know..."

He went on to say that the Festival performs roughly the same types of plays and musicals now that it always did, and he did not think he had changed the mix enough to have made a big difference (though not everyone would agree with his assessment). He did say that he always tries to make sure there is at least one well-known Canadian actor or actress in the company each season.*

I said,

"But the Festival did raise its prices some years ago, and quite dramatically."

He said,

"Yes, and I didn't want them to raise the prices. I was afraid it would drive people away from the theatre."

It turns out that, on average and in general, Monette was incorrect and the business folks at the Festival knew what they were doing.

The higher ticket prices did, indeed, reduce the quantity demanded. After all, demand curves are downward-sloping. But the reduction in the quantity demanded was not very large relative to the price increase.

In other words, raising the prices increased the overall revenues of the Festival. Prior to the increase in ticket prices, the Festival had been pricing tickets in the inelastic portion of the demand curve, where marginal revenue was negative. The business folk had a better read on the price elasticity of demand for tickets than did the artistic director. That should not be surprising.

*To tell the truth, I had never heard of some of the so-called big names he mentioned. But what else would you expect from the chair of the Philistine Liberation Organization?