Not only do theaters want to sell the extra seats, they also want people to arrive early, since they're selling concessions and playing ads.
Short term thinking; destroying value like that kills you in the long run. But sure.
Any frequent goer returns to the same location multiple times, so even if we consider each one in isolation, this is a very bad plan.
But all theaters do this. And they seem to be doing ok. Empirically, it does not seem like this is a very bad plan after all!
You're confusing what theaters should do with what you wish was a norm. Theaters are optimized for making you not think about spending money to see the show and have some snacks. They do this by appearing to be as simple and straightforward as possible (one price! no tough decisions about what good seats are left (at least until after you arrive)!).
If moviegoers were more rational, they'd make the auction obvious, and just charge more for better seats. Since they aren't (you took the bad/nonadjacent seats rather than getting a refund, and you continue to play the game to give them your money), the theater is encouraged to continue.
This comment made me think about this essay about (among other things), why Amazon ended up focusing on shipping feeds:
People hate paying for shipping. They despise it. It may sound banal, even self-evident, but understanding that was, I'm convinced, so critical to much of how we unlocked growth at Amazon over the years.
People don't just hate paying for shipping, they hate it to literally an irrational degree. We know this because our first attempt to address this was to show, in the shopping cart and checkout process, that even after paying shipping, customers were saving money over driving to their local bookstore to buy a book because, at the time, most Amazon customers did not have to pay sales tax. That wasn't even factoring in the cost of getting to the store, the depreciation costs on the car, and the value of their time.
People didn't care about this rational math. People, in general, are terrible at valuing their time, perhaps because for most people monetary compensation for one's time is so detached from the event of spending one's time. Most time we spend isn't like deliberate practice, with immediate feedback.
Wealthy people tend to receive a much more direct and immediate payoff for their time which is why they tend to be better about valuing it. This is why the first thing that most ultra-wealthy people I know do upon becoming ultra-wealthy is to hire a driver and start to fly private. For most normal people, the opportunity cost of their time is far more difficult to ascertain moment to moment.
http://www.eugenewei.com/blog/2018/5/21/invisible-asymptotes
Amazon to me is a great example of not trying to exploit your customers for short term profits, instead choosing to give them the best possible experience, and now because of that, they are Amazon - that means both finding a way to not charge for shipping by refactoring their prices and offering prime, even if some customers cost them money, to avoid looking like they charge for shipping, and also to actually offer a good deal and a great interface and so on. They're not trying to get you to buy overpriced stuff, or waste your time or maximize clicks.
The goal should be to provide the best customer experience, so you get people to come back, without making too many sacrifices on revenue per customer. The ads are chump change, I'd even argue having them at all is an error, but intentionally making your product worse to pitch them is a clear disaster. The snacks are more relevant, but the rush to get a seat (and the risk of losing it) cuts both ways, and goodwill towards the theater is likely a big factor in whether people are willing to shell out that much.
Making an actual different-price auction makes people make hard decisions, as you note, so it's a bad customer experience, same as getting put in a bad spot. So the goal is to design a system avoiding both; encouraging advance purchase of tickets to pick seats is a reasonable compromise, as is avoiding having terrible choices.
In the Ideal/Just World I'd like this to be true, but I'm not sure whether it actually plays out that way as reliably as I'd like. Right now theaters seem to be in an equilibrium where most of them do the same bad practices, making it hard to actually shop around.
(Meanwhile, I notice for myself that the biggest factor in which theater I go to is simply how close it is to my house, and what time it's playing the movie I want to see)
I think a similar thing is at play with airlines – sure, there's all kinds of ways I'd like the experience to be better, but it seems like most people basically just want cheap flights, and apart from egregious deceptive practices (where there's so many add-ons you're forced to buy that you learn to distrust the listed price completely), basically just going for cheap listed price seems to matter most.
An important bit with the Amazon article I linked is that most people don't know how to value their time, so trying to solve the problem in a way that properly values people time does not naively pay off.
At least some of the time companies seem to succeed by consistently delivering great products that respect me as a person, but it's far from obvious this is the dominating strategy even over the long term.
The ads give people time to arrive late and still buy snacks. And people who find them sufficiently aversive can just show up late, except for sold-out screenings. (Which are the ones the theatre least needs to intice people in for.)
From a quick google, it does look like the ads themselves don't make much money, which surprises me a bit.
Though this doesn't explain why they don't simply remove the ads and keep the trailers, which have most of the same benefits plus I think many people enjoy watching them plus they bring people back.
Epistemic Status: Lightweight
Related: Choices are Bad, Choices Are Really Bad
Yesterday, my wife and I went out to see Ocean’s Eight (official review: as advertised). The first place we went was a massively overpriced theater (thanks MoviePass!) with assigned seating, but they were sold out (thanks MoviePass!) so we instead went to a different overpriced theater without assigned seating, and got tickets for a later show. We had some time, so we had a nice walk and came back for the show.
When we got back, there was nowhere for us to sit together outside of the first two rows. They’re too close, up where you have to strain your neck to see the screen. My wife took the last seat we could find a few rows behind that, and I got a seat in the second row. It was fine, but I’d have much preferred to sit together.
It was, of course, our fault for showing up on time rather than early to a sold out screening. I mention it because it’s a clean example of how offering less can provide more value.
The theater should, if they don’t want to do assigned seating, rip out the first two rows.
At first this seems crazy. Many people prefer sitting in the first two rows to being unable to attend the show, so the seats create value while increasing profits. What’s the harm?
The harm is introducing risk, and creating an expensive auction.
The risk is that if you go to the movies, especially the movies you most want to see, you’ll be stuck in the first two rows. So when you buy a ticket and go upstairs, you might get a bad experience. If the show is sold out, that might be better, as you can buy a different ticket or none at all.
The auction is worse. Seats are first come, first serve. So if it’s important to get served first, you need to come first. If it’s very important to not be last, to avoid awful seats, you need to come early, and so does everyone else, bidding up the price of not-last the same way you’d bid up being first.
With no awful seats, those who care a lot about better seats will still come early, but most people care a lot less. So everyone can come substantially earlier, and not feel pressure. Many will show at the last minute, and be totally fine.
The deadweight loss in time, of adding those forty extra seats, is massive, distributed throughout the theater. Everyone feels pressure to get there early even when they already have a ticket, so even if their seat is good, they stressed out about their seat, and not only burned time but feel bad about being pressured.
Avoiding time-based auctions and signals, or at least minimizing the value at stake in them, is an important and underappreciated problem.