Unit VII Final Project

Unit VI Assignment

Charles Bunn

James Yoo

Principles of Microeconomics (BBA 2501)

March 28, 2021

Unit VI Assignment Background Information

Ruby Red Theater is now starting to work on its marketing plan to draw more customers into the

theater. Manager Tracy has provided you with the following information and asked for your help:

 There are four movie theaters in the town (Ruby Red, Grayson's Guild, Ryne's Reel 2 Reel, and Garrett's Dollar Movies).

 The city has passed a law banning any other movie theaters from building within the city limits.

 All movie theaters offer similar types of concession stand items at similar prices.  The average ticket prices per movie at each theater are:

Movie Theater Average Ticket Price

Ruby Red Movie Theater $10.00 Grayson’s Guild Movie Theater $8.00 Ryne’s Reel 2 Reel Movie Theater $8.00 Garrett’s Dollar Movies $1.00

 The first movie and last movie start times for the four theaters are:

Movie Theater First Start Time Last Start Time

Ruby Red Movie Theater 12:00 noon 11:00 p.m. Grayson’s Guild Movie Theater 10:00 a.m. 11:00 p.m. Ryne’s Reel 2 Reel Movie Theater 10:00 a.m. 11:00 p.m. Garrett’s Dollar Movies 12:00 noon 11:00 p.m.

 The average number of people who purchase tickets at each movie theater in town per month is:

Movie Theater Average Monthly Movie Ticket Sales

Ruby Red Movie Theater 15,000 Grayson’s Guild Movie Theater 23,000 Ryne’s Reel 2 Reel Movie Theater 25,750 Garrett’s Dollar Movies 25,200

 Grayson's Guild and Ryne's Reel 2 Reel offer a special "Two-for-One Tuesday" where you can purchase two tickets for the price of one.

 Grayson's Guild and Ryne's Reel 2 Reel just purchased the latest Goldby Surround Sound for their movie theaters.

 You recall that your economics instructor at Columbia Southern University had presented you with a table that outlined the four market structure types and their characteristics. After

searching through your old notes from Columbia Southern University, you found the table,

which is presented below:

Characteristic Perfect Competition

Monopolistic Competition Oligopoly Monopoly

Number of Firms Vast Many Few Dominant Firms

One

Type of Product Homogeneous Differentiated Differentiated Unique, Limited, No Close Substitute

Size of Firm Relatively Small Relatively Small Average to Large Large

Market Share Small Small Average/High Absolute

Barriers to Entry and Exit

None Low High Extreme

Price-Setting Power

None, Price Taker

Low, Price Maker High, Price Maker

High, Price Maker

Long-Run Economic Profits

None None Possible Possible

Answer the questions on the next page. Your answers must be a minimum of 300 words in length for

each question.

Unit VI Assignment

Part 1:

Using the provided table that outlined the various characteristics of each market structure type and

the information provided by Manager Tracy from Ruby Red Movie Theater, define the market

structure (perfectly competitive, monopolistically competitive, oligopoly, or monopoly) for the movie

theater market of this town. Discuss each market structure characteristic as it either relates or does

not relate to the movie theater market for this town. Make sure you address all four market

structures and each market structure characteristic in your discussion.

If you need additional space, please feel free to insert an additional page.

Answer:

From the market characteristics, the movie market in this town can be characterized as an oligopolistic market. This is because there are only four firms that compete in this market. There is also no room for the entry of other companies as the city has banned other companies' entrance in a similar market. Simultaneously, although all the companies are into the movie business, they find ways of differentiating their products. This is achieved through the different opening and closing hours and other ticket prices. The firms are also average in size because it is only four companies that operate in the market. Therefore, they serve the city people in ensuring they access entertainment. The barriers to entry and exit and exit in this market are high. This is first due to the regulations set by the city, making it impossible for other companies in this industry to come in. at the same time, this aspect ensures that the companies experience profitability. This is the reason why the exit barriers are high. This market is also the price maker since all the companies can set prices and compete. However, this market is not perfect because such a market is vast, and many players sell the same products. This means that the firms that arise are small, and hence profitability is small. This is most especially because the firms are price takers and are therefore unable to set prices that can help make profits. This market is also not monopolistic competition because it has few firms. Monopolistic competition markets have many firms hence the size of each is small with lower profits. In the long-run economic profits do not exist. However, it contains differentiated products, and the firms are price makers, just like in an oligopolistic market. The market is also not monopolistic because there is more than one firm. The products are also similar; hence there are close substitutes. However, the market has some similar characteristics, such as high entry barriers and exit and the fact that they are price makers in monopolies.

Part 2:

Given the market structure you have identified for the movie theater industry in this town, what

marketing ideas would you recommend for Ruby Red Movie Theater?

If you need additional space, please feel free to insert an additional page.

Answer:

The current market is oligopolistic, and hence the products sold are all movie products. Therefore, the intensity of advertising goes beyond the usual methods. Therefore, advertising alone may not derive the benefits of brand recognition and awareness. Consequently, the company must indulge in associating its brand with specific characteristics such as increased fun and activities. This way, it becomes possible to attract more customers who need to feel and experience fun. Once a strong brand is established, and the brand is recognized, it will have a competitive edge against the market due to the demand. They will have to spend more resources on advertising to ensure they compete effectively. The company can also make warranties a part of all their movies. This feature helps the buyers make a claim when they feel that they have not been able to get the expected results they were looking for. This will become like a cost in the advertising and become a means of competition. Therefore, the company should provide different warranties over time. The company should also use strategic pricing. Depending on the customer relationships, the company should set prices that the customers think are effective and fair to all parties involved. This means that the customers should get value for their money. The most excellent strategy in marketing is, however, to target the right population in the marketing. The industry is attractive to young people. Therefore, the marketing strategies should focus on reaching onto them. Avenues such as social media marketing would be an effective way of reaching potential and existing customers due to the overwhelming popularity of social media. They should also identify their current market position. By using the number of tickets sold, the company is the last in position 4. Therefore, it is essential to devise marketing strategies such as setting lower prices to attract more customers and bring in bigger crowds.

Part 3:

Grayson’s Guild Movie Theater has made an offer to purchase Ryne’s Reel 2 Reel Movie Theater. The

merger would result in both theaters operating under the same business ownership. What problems

would this merger cause for Ruby Red Movie Theater? Could the government have issues with this

merger?

If you need additional space, please feel free to insert an additional page.

Answer: Mergers in an oligopolistic market have a significant impact on the other firms. A merger such as Grayson's Guild Movie and Ryne's Reel 2 Reel Movie would mean that the company formed is larger and a more powerful organization. It also has more resources and hence more capable of carrying out different marketing strategies. For example, this merger would mean that the new company can lower the prices and set new market standards making it more competitive for the others. The problem with this approach is Ruby Red Movie Theater has set high prices for its products. It already has a lower demand because it serves 15,000 customers. Combining these other two would mean they will have a combined market of 48,750 customers. The individual companies, in the beginning, were charging $8 for a movie ticket. However, with a merger, they can set their prices at $6 to attract more customers, especially from the Ruby Red Movie Theater charging $10 per movie. This merger's other impact is that it will provide more human resources and other facilities for use. This is because they will combine experts from two sides. Issues of problem- solving, strategic decision making, and performance are likely to get the best attention. Therefore, the management will steer the company into success. With such an approach, others cannot compete rather than follow the pursuit and the direction being made by the new company. Although the market remains oligopolistic, the merger would create a form of monopoly for the large firm because they will have the power to set new industry prices. The problem is that the city cannot prevent the merger of these two firms. They are already existing and hence are not barred by the new law preventing new entrants. The city will have to allow this and accept the overall outcome of this merger.