I went to see Project Hail Mary today, and while driving there, I got to thinking about how late I was, and whether my seat would still be empty and not taken up by someone else. It was a great movie by the way, among other things, a genuinely fun buddy comedy about two very different beings trying to cooperate across an almost total communication gap using fundamental math, time and the concepts of physics and chemistry to learn each other’s languages. I totally recommend it. But coming back to my pre-movie ruminations, would my seat still be empty? And if now, how would I respond.
Before we dive in further, I’ll add a disclaimer, I have always been fascinated by the economics of the movies business’s and almost a decade ago during the short-lived heydays of Moviepass, I tried to convince one of my IO professors in grad school that it would be a great theory paper to write. Mind you, I was in an applied micro program but my intuition and the skeleton framework I had put together turned out to be true, Moviepass was unsustainable and the only way the system would work if it was able to both sell our data at a substantial price and also partner/team-up with a specific theatre chain and capture a portion of the market. But I digress, let’s come back to today’s issue.
Playing out a probably scenario in my head before I am confronted by it is what I do. And just because I reserved a great seat (I am picky about good viewing angles and the right row and will pick a different showtime and smaller screen just to get a better angle), I knew there was not a guarantee I would find it waiting for me. So there I was, driving and thinking about who actually owns the seat I was sitting in, and what would happen if someone (me) showed up to claim it and there was someone else sitting in it.
A few years ago, buying a movie ticket was quite simple. You paid, you walked in, you picked an empty seat. First come first served. The Southwest Airlines rules (I know they have recently changed their own rules now). If you came early, you got to line up and pick the best seats. Today the whole experience is a lot different. You buy online, you select Row F, Seat 12 at the time of purchase, and that seat is in principle yours to sit on when you show up. You can even time it perfectly so you skip the ads (and even the trailers if you wanted to) and slip into your seat just as the movie starts. Reserved seating reduces uncertainty, eliminates the scramble for good spots, and makes coordination easier for groups – back in the day, you would have to meet up 20-30 minutes ahead of time and you still might not be seated together. These are genuine improvements in the consumer experience. Of course this allows movie theaters the ability to do what JetBlue, Delta, American and all the other airlines have begun doing – charge higher prices for better seats, make it a premium product, and extract more consumer surplus. What economists call price discrimination. But that is a rant for another day.
No, instead let’s focus on the simpler and nicer version of the story – the one where I don’t pay extra for reserving a good seat ahead of time. Embedded in this wonderful change is quite the interesting trifecta of economic ideas – clearly defined property rights, an enforceable contract, and the persistent, underappreciated role of transaction costs and how they interact to reach the final outcome. The interesting question isn’t whether you have the right to your seat (you do, that is the agreement between you and the movie theater). No, the interesting question becomes whether you’ll actually do anything about it if someone else is sitting there.
And lo and behold, I had to answer that exact question today as I had guessed I might have to, being a couple of minutes late.
Property Rights in a Movie Theater
Property rights emerge when the gains from internalizing externalities exceed the costs of defining and enforcing them (Demsetz, 1967). Reserved seating in a movie theater is a great example. Without assigned seats, you have a coordination problem: people arrive early to claim better spots, groups struggle to sit together, informal disputes erupt over saved seats. There is conflict, there is uncertainty, and there is time wasted. Assigned seating at the point of purchase resolves this by formalizing ownership. Your ticket is now a claim to a specific resource – not just any seat, but that one, and you can coordinate with your group and know ahead of time where you are sitting, and different members of the party can arrive at different times and not have to worry about sitting separately.
In theory, this is a great solution! It should reduce conflict and uncertainty. The allocation is predetermined; there’s nothing left to compete over. But the other thing Demsetz is famous for is arguing that we shouldn’t just make perfect ideal-world models, and try to make things realistic. This is important in this context. Because defining rights is only a part of the story. The other part is enforcement, how is this contract and assigned seating enforced. In an ideal world everyone would just sit in their assigned seats. But whether because it’s too dark and someone read the numbers wrong, or because of a strategic decision to sit in a better seat, some people may choose to sit elsewhere.
So what happens then?
Contracts That Are Technically Enforceable
When you buy a reserved-seat ticket, you enter into a contract with the movie theater. The theater agrees to provide you access to a specific seat; you hold a legitimate claim to it. If someone else is sitting there, they are, in a strict sense, violating your property right. This isn’t just theoretical. After all, the movie theater is a private business and the contract is genuinely enforceable. You can ask the person to move, show your ticket as documentation, and escalate to staff if needed if they are being uncooperative. The institution itself functions as the enforcement mechanism and is an important lesson from IO – rights derive their meaning from the systems that back them up.
But let me present today’s scenario.
The Hidden Costs of Being Right
Suppose you arrive a few minutes late and find someone sitting in your assigned seat. You have a valid claim to the seat, and if you really wanted to sit there, you could. And yet, enforcing that right is not free.
Why? Transaction costs. Not the explicit monetary ones, but in this case a cost nonetheless. As a quick refresher, transaction costs in economics parlance are the additional costs of using the market mechanism beyond just the explicit price of the good – such as the costs for search, bargaining, and enforcement. Textbook examples usually tend to make these costs explicit and monetary, but they don’t have to be. They can, and oftern are, implicit and psychological. And this makes them no less real.
Let’s consider the movie theater scenario. There’s what I would call the social cost (externalities). I would have to initiate an uncomfortable interaction, interrupt someone’s movie experience, signal that they’ve done something wrong, and create a visible moment of tension in a shared space where everyone around might already be engrossed in watching the aforementioned and have I mentioned great movie. Then there’s the time and effort – comparing tickets, explaining the situation, maybe tracking down a staff member, waiting them them to collect their things and move to a new chair, all while the movie is running in the background and I am missing out on what could be important plot elements. And there’s additional uncertainty. What if the person resists? What if this escalates to a very disagreeable outcome for everyone, and ruins the night and the movie. Is resolving this issue of the wrong seat worth more than the slightly worse experience I will have simply sitting somewhere else (as long as the seat isn’t too bad).
None of this shows up on a receipt. But it shapes behavior – it definitely did affect my decision. So what did I do? I chose to sit on the empty seat right next to my original one and ended up enjoying what was quite a wonderful movie.
When Do People Actually Enforce Their Rights?
The decision to enforce is, in practice, a cost-benefit calculation – even if it’s not always consciously framed that way. If an alternative seat is nearly as good, most people won’t bother, just like I did. Or at least I hope so. The transaction cost of enforcement exceeds the benefit of reclaiming the assigned spot, and it’s just easier to sit somewhere else.
The calculus shifts when the stakes are different. When the theater is full and there’s nowhere else to go. When you’re trying to sit with your group. When the alternative seat is meaningfully or even materially worse (dropped popcorn and butter perhaps?). In those cases, the benefit of enforcement increases enough to justify the friction.
What this produces is a system where property rights exist but their exercise is contingent on this cost-benefit calculation. The final allocation of seats in the theater isn’t purely determined by the ticketing and seat reservation system. It’s shaped by the interaction between that system and each individual’s tolerance for friction on a given Monday night.
A Coasian Reading
From a strictly Coasian perspective, the initial allocation of rights shouldn’t matter for efficiency if transaction costs are low – parties can bargain and reallocate to reach an efficient outcome regardless of where rights start. But in the cinema, transaction costs are not always smal relative to price, has an audience (literally), and may be unevenly distributed. They may be even harder to overcome precisely because they aren’t monetary. You can’t pay your way out of an awkward conversation.
What follows is what I faced – some people will occupy seats they have no right to, either accidentally or because they are intuiting that enforcement is unlikely. Some like me will surrender valid claims rather than absorb the social cost of asserting them as long as the alternative isn’t bad. The resulting allocation is. Kr the same as the formally allocated one not through market failure, but through the quiet, persistence of friction, of transaction costs.
Why This Generalizes
It’s tempting to dismiss the cinema as a one-off. But the mechanism isn’t trivial at all, and it shows up across a wide range of settings where contracts are technically enforceable but practically costly to use. Minor billing errors at the hotel or car rental where the cost of fixing the error exceeds the amount at stake, informal workplace agreements that disappears through quiet non-compliance because no one wants to be the person who makes it formal, tenant rights that go unexercised because asserting them risks the landlord relationship, insurance claims abandoned not for a lack of coverage but for the friction of documentation and back-and-forth. And if you have kept up with the news you will know that this is an actual strategy that insurance companies have pursued. It’s callous, dystopian and Black Mirror-ish, but imagine a world where a terminal patient is caught up in a document limbo, in administrative hurdles for so long… It ends up being too late.
In each case, the person could know their rights, have legal or institutional backing, and still end up not doing anything because the transaction cost of enforcement, even modest ones, exceeds the perceived benefit. The rights exist on paper. They don’t always exist in practice.
What This Means
So what have we learned? If the gap between formal rights and exercised rights is driven by enforcement costs, then the most relevant question isn’t how do we define rights clearly? No, rather it becomes how do we make enforcement cheap? Theaters that staff ushers and staff to actively check seating are addressing this directly. Platforms that automate dispute resolution and optimize on solutions, and not just cost savings are doing the same thing. The insight generalizes – any institution that wants its formal rules to affect actual behavior needs to think about the cost of invoking and enforcing those rules.
Those who have encountered Coase in their textbooks know that the real lesson there is that in the real world transaction costs exist, and that transaction costs and initial allocation can determine who ends up with a resource. What the theater demonstrates is something related – transaction costs determine whether formally assigned rights translate into rights in practice.
Rocky and Grace – our buddy duo in Project Hail Mary – spend most of the film figuring out ways to reduce the cost of cooperation across what seemed like a total communication barrier at the beginning. Figuring out how to have a conversation, not rewriting physics, is what makes the movie fun. There’s always room for improvement, and even a good system may not be perfect but can still work fine.
