Demand for Performing Arts: The Effect of Unobserved Quality on Price Elasticity

Abstract

This paper studies behavior patterns among theater attendees in the process of ticket purchasing. Since the theater attempts to balance between a high occupancy and affordable prices, the purpose of the study is to reveal the effects of changes in prices on attendance. This project is conducted conjointly with the Perm Tchaikovsky Opera and Ballet Theater. Data are taken from the sales information system of the theater for four seasons 2011-2012/2014-2015. The data are disaggregated to the level of the seating area and performance and consist of the attendance rate, the set of prices and the performance characteristics. The research explores the determinants of demand using a censored quantile regression which accounts for the heterogeneity of effects on different levels of attendance rates and censoring. We estimate the parameters of the demand function and show that the aggregated demand is elastic by price, at the same time the elasticity varies across different seating areas. Moreover, demand for the more popular seats and performances is less elastic.

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