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Why Popcorn Costs So Much at The Movies
That's the title of the new microeconomics book by Richard McKenzie. Here is a book trailer on YouTube. The subtitle is: "And Other Pricing Puzzles."
I am a fan of this book and I wrote a blurb for it. It is popular economics but it is more extended microeconomic reasoning than most of the other popular economics books.
Posted by Tyler Cowen on May 23, 2008 at 11:07 AM in Books | Permalink
Comments
I think this genre should be called "Popcorn Economics". Both because of this popular example and becuase it's light and fluffy and I tend to "snack" on it inbetween reading other things.
Posted by: M at May 23, 2008 11:00:37 AM
I understand why popcorn costs more at the movies, and I don't mind a mark-up. But do the theatres/stadia/airlines/etc. have to be so shameless in their pricing?
Posted by: Thelonious_Nick at May 23, 2008 11:03:59 AM
But do the theatres/stadia/airlines/etc. have to be so shameless in their pricing?
If you are talking about movie theaters, most make their profits from concession. Just showing movies isn't that profitable.
I think the decline of the art-house movie theater in many places has to do with the fact that the type of people who like seeing art films in the theater, find big buttery buckets of popcorn distasteful and declasse.
Posted by: Rex Rhino at May 23, 2008 12:42:07 PM
Link appears to be broken, chief. All I get is a 404 error.
I'm looking forward to a book on the specifics of pricing, though. Might be a welcome break from all of these books about less-monetary-and-more-psychological stuff.
Now, here's a question: why does Amazon bundle books with other books that are similar? This goes a bit against the explanations about price discrimination in our micro classes ;)
Posted by: Robert Olson at May 23, 2008 12:53:08 PM
How does this book's explanation compare to Landsburg's chapter on the same in the Armchair Economist (all the way back in 1995)?
Posted by: Sean at May 23, 2008 1:05:33 PM
Robert, I think the answer to your Amazon bundle question is that they don't actually offer any additional discount for buying both things together (the stated discount is just the difference between the Amazon prices and the list prices). so it's basically just like their other "if you liked X, you might like Y" recommendations, but it's given extra prominence.
Posted by: Mike at May 23, 2008 1:21:47 PM
I think the decline of the art-house movie theater in many places has to do with the fact that the type of people who like seeing art films in the theater, find big buttery buckets of popcorn distasteful and declasse.
The theater needs a liquor license and an intermission.
Posted by: 8 at May 23, 2008 2:57:09 PM
Can anyone pricisely tell us why concessions cost so much at movie theaters? In the video believe McKenzie is pointing to this anti-trust case: http://en.wikipedia.org/wiki/United_States_v._Paramount_Pictures%2C_Inc.
I'm not sure exactly how that case leads to low ticket prices and thus the need to overcharge on concessions, however.
Posted by: Grant at May 23, 2008 6:06:19 PM
Grant, my hunch would be that popcorn pricing doesn't enter the equation when a movie company also owns the theatres where they will show their movies. The current system is of course better, because a theatre will not only show movies from studio A, but also from studios B, C & D, giving the consumer more movie options to see. Remember, you don't have to buy any popcorn.
Posted by: kurt at May 24, 2008 11:13:58 AM
You don't have to buy any movie tickets either.
If vertically integrated firms behave differently then popcorn prices could also be affected. If showing movies became profitable the firm may attract viewers with cheap concessions - like casinos do.
Posted by: M at May 24, 2008 11:33:15 AM
My first ever job was working at the local mega cineplex in the mid 90's (10 screens in those days was considered large). The particular location I worked was the company's only one in the entire region and we were one of the top three in terms of profit per customer, at the time around $2,12 per person if memory serves. Almost all the theatre's profits came from popcorn. Ticket revenues almost all were returned to the studio/distributors and the 25 cents that we kept didn't even cover costs. Sodas were very low margin items and alone would not make the theatre business profitable. Popcorn kernels are cheap to buy and easy to store. Unlike other food items such as soda, candy, or ice creame, where we traded in part on the name of the brand, which the firms used to increase costs and lower margins, popcorn has no such associated costs. Towards the latter part of my work there, they added a "bulk" candy apparatus, for lack of a better term, and positioned it prominently in the lobby area, again because this candy was not sold as a brand was a far higher grossing product.
Posted by: Shaun M at May 24, 2008 12:23:48 PM
In the United States, movie studios aren't allowed to own movie theaters, so this vertical integration doesn't exist. Perhaps it does exist in other countries, but in any case cultural differences would make comparisons difficult.
Intermissions wouldn't work: nearly all movies nowadays are too short for them. And the longer the movie, the fewer daily showings, so your revenue would be way down anyway even if you tried longer movies with intermissions. A final issue is that seats aren't preassigned in US movie theaters, so reclaiming a good seat after the intermission might be problematic.
However, some movie theaters with stadium seating do live retransmissions of things like opera performances, and those do have sufficient length, intermissions, and well-heeled patrons to make upscale concessions work. But these are special events and not the daily bread-and-butter stuff that movie theaters make a living from.
The biggest factor that will soon shake up movie theater economics is an interesting new development: 3D movies. Not the old kind with funny colored glasses, but a much more recent technology that actually works very well, with a big "wow" factor. Movie studios and theater owners have put aside their perpetual squabbling and are cooperating in a rush upgrade of theaters to allow 3D projection, trying to make this go mainstream in a very big way. As a necessary part of this, theaters are of course being upgraded to digital: no more shipping multiple heavy reels of film prints. The betting is that 3D will draw audiences back into theaters instead of waiting for the DVD to come out; however, even if 3D doesn't catch on, the long-delayed conversion to digital projection that it is bringing about in its wake will shake up the economics of film distribution and operating a movie theater.
One possible outcome: the high cost of oil may hurt the big stadium seating theaters that you have to drive a long way to get to, but freed from the multi-million dollar expense of making and distributing film prints, a blockbuster movie might open in tens of thousands of smaller local venues (a return to the small-room multiplexes of the 70s and 80s?). Blockbuster movies will also probably open simultaneously worldwide instead of the current staggered release schedules dictated by having a limited inventory of available film prints. We might also see more long-tail effects, as even tiny venues could create impromptu film festivals at low cost.
Posted by: at May 24, 2008 12:33:54 PM
The best micro text which is not popular and which uses an axiomatic unusual explanation of micro principles is the one by Vivian Walsh (published long ago).
Posted by: GVV at May 24, 2008 1:23:30 PM
One of my first jobs out of school was running the popcorn division of a Fortune 500 food company. I attended meetings of the Popcorn Institute, followed planting patterns, inspected acreage, had meetings with our food chemists, and attended seminars on new popcorn hybrids. We had grocery, concession, and institutional buyers. What I remember most about about the concessions, primarily theaters, was they were all focused on the expansion ratio of the kernel. At that time we could deliver up to 40:1, but they wanted more. It was inventory, storage, and pricing issues. If they could have filled a 1 quart cup with 15 kernels that had an expansion ratio of 300:1, they would have bought it (selling more air). That was why we only sold them butterfly kernels instead of the superior mushroom kernels. I know it's really off topic, but it's a bit of trivia I couldn't help adding.
Posted by: SheetWise at May 24, 2008 10:11:23 PM
Here's another movie-related question that I think is more interesting:
Why do movie theaters charge the same price for all their movies, instead of charging more for the blockbusters (which will have more demand and I'm sure will cost more to get the rights to play the film) than for duds? Market mechanisms seem to be replaced somewhat by firm-level control here. (I can't help but be reminded of Ronald Coase).
Posted by: brian at May 25, 2008 2:52:38 PM
Brian, good question, I was also always wondering about those uniform prices. There is a complete chapter in McKenzie's book devoted to that question (Chapter 8: Why Movie Ticket Prices Are All the Same).
Posted by: at May 26, 2008 4:36:16 AM
Why do movie theaters charge the same price for all their movies, instead of charging more for the blockbusters (which will have more demand and I'm sure will cost more to get the rights to play the film) than for duds?
This may be to keep one constant in the equation, so that attendance metrics are not biased.
Posted by: SheetWise at May 26, 2008 10:08:20 PM
But why should movie theaters care about unbiased metrics at the expense of a reduced profit? Apart from that, the studios do sell DVDs of the very same films at totally different prices. If they would care about unbiased sales figures, they would have to sell each DVD for the same price as well.
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