Scaling the house: optimal seating zones for entertainment venues when location of seats affects demand

Abstract

This paper studies the problem of 'Scaling the House', or how venue managers should optimally divide seats into sections with different prices. From previous study, it was found that distance from the stage and distance from the seating row's centre affect demand. We develop a two–dimensional zoning model for the optimal 'Scaling the House' decisions. When demand is not significantly sensitive to distance from the centre, we present an alternative one–dimensional zoning model and show that the optimal seating row (to be priced at a higher price before switching to the next lower price) is the row whose expected revenue when charging at a high price is equal to the expected revenue when charging at a low price. We provide key comparative statics on how model parameters impact the optimal decisions and discuss the important managerial insights on when it is most worthwhile to section seats into two dimensional zones.