Some economics of movie exhibition: increasing returns and Imax revenue premium

We strongly reject the hypothesis of theater design revenue neutrality using a large dataset of Chinese theaters. Instead, we find large increasing returns in revenue from adding auditoria up to 9 auditoria, close to constant returns from adding seats up to an intermediate seating capacity of about 120 seats, beyond which decreasing returns prevail, and a large revenue premium to having an Imax auditorium. These revenue gains are largely due to differences in capacity utilization rates, and to a lower extent to differences in screening intensity (more showings per screen), while price differences play a negligible role. We discuss various mechanisms that may rationalize deviations from theater design neutrality. We conclude that a large fraction of Chinese theaters have too few auditoria and too many seats per auditorium, although this is less so for recently built ones. These violations of profit maximization are likely explained by the long-term, irreversible, and risky nature of theater design choices.