
In a competitive market, why is movie theater popcorn expensive? - JeremyBanks
http://economics.stackexchange.com/q/437/174
======
pessimizer
1\. It's not a competitive market; each person who wants to watch a particular
movie only has between one and maybe four choices of venue until the travel
costs outstrip any differences in price. Any number of these could be owned by
the same chain.

2\. In addition, there's no way to compare concession prices easily before
making that choice; once the potential buyer of popcorn, even assuming they're
looking at the popcorn prices before buying a ticket, has seen those prices,
they need to add the relative travel time to speculative estimates of other
theaters' popcorn prices.

3\. Lastly, they collude, and all the prices are about the same. Good luck
getting somebody to let you run their movie in your theater-killer that leads
on concession prices. Vertical integration was a term invented about the movie
theater industry; contracts are in place.

~~~
alttag
Re #3: Game theory suggests theaters can approach the same higher prices
without colluding. Seeing as how price collusion is illegal (in the U.S.), and
the results are reachable in another way, the accusation isn't necessary.

~~~
Cushman
I'm curious what the effective difference to society is between a group of
businesses all agreeing not to compete on price, and a group of businesses
which each individually decides not to compete on price.

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maratd
Meh. This one's pretty simple. Ticket revenue mostly goes to the studios. The
theater pulls in the cash through the concessions. The cost of the
concessions, while high by microwaveable popcorn standards, are highly
competitive among their peers.

~~~
waterside81
You're bang on - all of the economic jargon on the StackExchange page is
funny. People are overcomplicating matters. I used to work for the largest
theatre chain in Canada and remember that George Lucas demanded 100% of ticket
sales for the first 3 weeks of his Star Wars releases (and re-releases), which
is unheard of, but he can command that.

Popcorn & soda is where theatre chains make their money. From what I recall
the marginal cost of each soda was about $0.25, popcorn is even less.

~~~
joezydeco
There had to be a bit more to the Lucas thing, though. Like a minimum ticket
price.

Otherwise I would have (as a theater owner) slashed my ticket price by 99% and
doubled the cost of popcorn. Still a win for the moviegoer and theater owner.

~~~
waterside81
Well, that's not really reasonable. Now you have different ticket prices for
different movies (patrons would be outraged) and then you have inflated
concession prices for all patrons (or only some?). The software that movie
theatres use to run their POS terminals isn't that flexible.

------
sliverstorm
IMO, the movie theater lobby is _not_ a competitive market, and this is why it
is expensive.

(This being because people habitually think about food only after they have
gone through ticketing and are committed to the movie- and some theaters also
disallow outside food)

If you don't believe this theory, then ask yourself why is food sold after
ticketing, rather than before?

~~~
Jach
If you just mean that a lobby isn't like a food court where multiple vendors
can try and sell you food, I agree it's not a competitive place and ignore the
next paragraph.

I think most if not all of the theaters I've been in didn't require a ticket
to reach the concessions counter in the lobby, so you could if you wanted buy
food there and just leave like any other walk-in fast food place. (Of course
the ticket place has been the closest place relative to the parking lot but I
don't remember it ever blocking further access.)

The reason for theater non-competitiveness and high food prices has more to do
with non-competitiveness in Hollywood, I think. Theaters typically take only
20% or less of the ticket price with the rest going to studios, in some cases
depending on the movie (such as Star Wars Ep 2) the studios can demand up to
100%, for the first week or two. (They get more as time goes on but then less
people go to see it so it's moot.) Rising costs to make the movies also hits
the theaters as studio agreements demand more money. Theater owners are in the
candy business, not the movie business.

~~~
sliverstorm
Don't get bogged down in what profits they do or do not make on the tickets
(not that you are wrong). Whether or not they make good money on the tickets,
market theory tells us they will sell the candy for as much as they can get
away with :)

~~~
tsotha
That's true. However, they can only get away with selling it at that price
because all the theater chains are in substantially the same position _vis-à-
vis_ the studios.

------
wtvanhest
The reason that none of the explanations make logical sense is because the
theories presented only look at the demand side (Willingness to Pay) but the
answer is on the supply side.

The movie theater business is a surprisingly low profit business. Net income
accounts for less than 3% of revenue
([http://www.google.com/finance?q=NYSE:RGC&fstype=ii](http://www.google.com/finance?q=NYSE:RGC&fstype=ii))

Theoretically the prices on concessions are already the lowest point possible
for the theaters to still make a profit. In essence, all the demand side stuff
the authors mention is correct, but they mistook what the actual marginal cost
was.

------
wr1472
There was a Channel 4 programme (in the UK) recently where super chef Heston
Blumenthal goes to various food based businesses and tries to re-
invigorate/turn around fortunes.

In this particular episode ([http://www.channel4.com/programmes/hestons-
mission-impossibl...](http://www.channel4.com/programmes/hestons-mission-
impossible/episode-guide/series-1/episode-2)) he goes to a large multiplex to
see how he can create alternatives to popcorn. He produces some amazing
concepts but the bottom line is popcorn is too profitable to strike off the
menu; less than a penny to produce a bag of popcorn that retails for £3-£4.
Even the paper bag the popcorn comes in cost more to buy than it does to make
the popcorn.

PS: Link may only work in the UK.

------
ww520
It is another way to segment the customers. Theaters would love to charge the
total price (ticket+concession) on everyone, but not everyone is willing to
pay such a high price to watch a movie, so theaters segment the customers into
two piles - one willing to pay the basic price (ticket) and one willing to pay
the premium price (ticket+concession).

------
hristov
Because most people do not consider the price of popcorn when making a
decision as to which movie theater to attend.

~~~
marshray
Right, like you're supposed to call ahead and shop around? Or remember the
relative prices of the different theaters in your town.

All I remember is that the concessions are ridiculously expensive, the
theaters show you ads before the movie, and often Hollywood films have subtle
advertisements in the movie itself.

This is why I rarely go to movies. I don't like feeling ripped off.

~~~
klbarry
It is interesting to me how much a subset of hacker news readers, such as
yourself, hate advertising. Many laypeople find the pre-movie advertisements a
lot of fun. Heck, my girlfriend prefers TV advertisements to many shows.

~~~
Leynos
Personally, I'd be happiest if I never had to view or listen to another advert
again. I can get away with this by timeshifting TV and listening to the BBC
instead of commercial radio (the quality of the BBC output is generally higher
anyway and seemingly no one's been able to sustain a commercial equivalent of
Radio 4). Of course, vehical side advertising and billboards are unavoidable,
but that's life I guess.

Re cinema advertising. In the UK, the cinemas only start to fill up after the
adverts are over.

We have about 10 minutes of adverts followed by 10 minutes of trailers. The
seats start to fill up while the trailers are on. A lot of people take it as a
given that the film will start 20 minutes after the advertised time and so
plan accordingly.

~~~
pbhjpbhj
> _A lot of people take it as a given that the film will start 20 minutes
> after the advertised time and so plan accordingly._ //

I can't understand how this is allowed by the ASA (in the UK). Why is it you
can't advertise the ticket price as £8 when it's really £12 but you can
advertise the start time as 7pm when it's really 7:20pm; it's not like they
didn't know the start time.

------
gwillen
I think all the options there ignore the _very_ _very_ obvious fact that
popcorn is _not_ a competitive market, because most of the consumers in the
market don't know the prices! If you disagree, try to recite for me how much
popcorn costs at your nearest three major theaters right now. Do you check
before you decide where to go for a movie?

This is well in line with my own pet theory of the free market, which says
that people's brains can handle optimizing on one or _maybe_ two things when
making a product decision, and anything else is overwhelming. For a theater,
that's what movie you want to see, and what price you have to pay. Anything
beyond that and you have to start making spreadsheets, and it's not worth it
to anybody. So beyond the price and the main desirable quality of the product,
producers aren't really forced to compete, because nobody will call them on
it.

~~~
albickers
It sounds like you'd enjoy looking into "the paradox of choice" (the econ
literature, not the junk science book with that title). There is a good bit of
evidence that too many choices reduces utility and induces irrational behavior

------
imgabe
How many people would decide which theater to go to based on popcorn price? I
look at if it has the movie I want to see at the time I want to see it, if
it's convenient to get to, and how nice the theater is. Driving out of my way
or going to a crappy theater to save one or two dollars on popcorn is not
worth it.

------
spullara
I hope that reading the ridiculous theories by the economists (with the best
answer voted down) doesn't look like what an economist sees when they read our
analysis of software.

~~~
ramchip
I'm not an economist, but I think the top answer makes plenty of sense. Price
discrimination is an important concept for many products: cinemas, bus/train
tickets, computers...

Instead of just proposing theories with nothing backing them up, like the
answer that's being voted down, the top post refers to people who have
actually modeled the problem and checked that their theories explain the data.

~~~
archangel_one
I tend to agree with the OP on this; the top post cites a lot of complicated
language but the conclusion is kind of weak (why do these "popcorn lovers"
feel it's worth more to buy it at the movies?). The answer further down that
points out that someone on a date buys it there so as not to look cheap is, to
me, more insightful than citing a bunch of papers. I guess I find an
explanation of why the market will bear the high price at the theatre more
interesting than a whole lot of economic jargon around it. Although this is
the economics stack exchange thing, so maybe that's what's expected...

------
pbreit
The "competitive market" clause seems like a faulty assumption to me. In most
areas, the number of theaters are showtimes are quite limited. And I'm not
sure what sorts of entertainment are legitimate alternatives to seeing a movie
on the big screen (at $12 for 2.5 hours, it's one of the cheapest forms of
entertainment).

------
padobson
_The idea is that a customer’s intensity of demand for aftermarket goods (e.g.
the concessions) provides a meter of how much the customer is willing to pay
for the primary good (e.g. admission). If this correlation in tastes for the
two goods is positive, a high price on the aftermarket good allows firms to
extract a greater total price (admissions plus concessions) from higher type
customers._

I absolutely love this answer. I think it explains to a T the best way to
extract value from a social network - and Zynga is proving it more than
anyone.

The cost to join a social network is some amount of personally identifiable
information. The value you get out of joining is that you will be able to
contact, keeps tabs on, and enjoy various types of media with people you're
interested in (friends on Facebook, celebs/friends/thought leaders on
Twitter).

However, the cost to joining the social network is lower than the cost that
some people (higher type customers) are willing to pay, so social networks and
their app makers seek to extract the surplus by charging for various types of
digital content (ironically, sometimes movies -
[http://news.yahoo.com/blogs/technology-blog/now-playing-
face...](http://news.yahoo.com/blogs/technology-blog/now-playing-facebook-
dark-knight-20110308-070056-341.html) ).

Zynga takes this to an even greater level by offering you a chance to play
with your friends for free, and then charging higher type customers for
additional content.

In both of these cases, the value provided to the customer is directly
correlated to the number of people using the service (you know, Network
Effects, <http://en.wikipedia.org/wiki/Network_effects> ), but to those higher
type social butterflies that need to show off their good taste by buying
kitten icons or can't watch a movie online without their friends watching with
them or need to be able to school their friends at Mafia Wars, they are
willing to pay more than others and will pay a great deal more than their
friends for a similar experience.

One last thought: the "activities with celebrities" marketplace is incredibly
fertile. Night clubs pay celebs big money if they party on the premises.
Celebrity golf events bring in big cash for charities. It seems like Twitter
is perfectly positioned to cash in on this phenomenon, and I have no doubt
that their are some higher-type Twitterers that would pay big money in a
scarcity situation to play Mafia Wars with Shaq.

------
freshhawk
> Before entering the theater I can choose among theaters > and compare the
> opportunity costs of my movie-going > experience (which would include the
> utility of consuming > popcorn after its cost).

Doesn't this answer the question right here?

People don't do that. Everything we know about cognition and human decision
making (from neuro scientists, not from economic philosophers) tells us that
humans are not rational actors making decisions using game theory.

All the answers certainly show the descriptive power of economic philosophy,
but since the same group could be just as convincing about "why movie theatre
popcorn is so cheap" I'm not sure what the point is of debating these things
in a framework without any predictive power.

~~~
Symmetry
Except that if "rational actor" didn't describe humans at all people couldn't
even manage to get to work in the morning. There are a large number of ways in
which people aren't rational actors - we are loss averse, we overuse the
availability heuristic, we're subject to anchoring effects, etc. However, if
you look at the space of all possible ways someone could behave, we're not too
far from being perfectly rational. If I'm in a store and I'm thirsty I'll buy
a drink rather than some salt or a mop. If I want to get to my friend's house
I probably won't try to get there by swimming except in really unusual
circumstances.

~~~
freshhawk
Right, but predictions or descriptions of human behaviour based on guesses as
to where humans fall on the line between perfectly rational and completely
irrational are also guesses.

And when discussing movie theatre popcorn I think it's pretty clear that the
irrational or arbitrary aspect of human rationality is in play here. The
discussion on stackexchange is silly, you mentioned anchoring effects
yourself.

------
ruggeri
I think a lot of the discussion (including the accepted answer) is missing the
point: how, _in the presence of competition_, is the theater able to
profitably price discriminate. The competitive assumption is supposed to imply
that price should be driven to cost. Without competition, any business will
price discriminate if they can.

As others have pointed out, probably price of popcorn is not a big factor when
choosing theaters. People don't have it in mind, or don't expect to buy
popcorn (but then are suckered by the butter smell). It may come down to
whether people are responsive to popcorn price; showing times and proximity
are probably bigger factors.

Even if people were responsive to popcorn price deltas of ~$2, perhaps theater
owners know that none of them has a unique ability to compete on popcorn
price. Theater X can cut their prices, but theater Y can always respond and
match it. As long as the cut is being matched, the theater does not "steal"
any customers, and is only shedding revenue.

Two theaters can compete all the way down to marginal cost; what, $1 for a bag
of popcorn? Let's say theater X has even better popcorn technology: it can
produce popcorn for $.90, $.10 cheaper than anyone else. Still, theater X is
not incentivized to sell their popcorn cheaper, since it is doubtful theater-
goers will choose a venue based on $.10 off popcorn.

So with a little foresight, perhaps theaters realize none of them would profit
by competition on popcorn prices. That's the other answer being kicked around:
collusion.

------
powertower
> Owners joke about being in the candy business. If you didn’t have
> concessions at a movie theater, there would be no movie theater. We have
> movies just to get people in to buy popcorn and candy, where we make our
> money.

<http://www.google.com/search?q=movie+theaters+make+money>

Someone really dropped the ball giving out those answers. That thread is pure
intellectual masturbation.

It's widley known that ticket prices barley cover the expenses and fees
associated with getting and showing those movies...

In general, movie theaters don't make money on movies. They make money when
someone comes in and buys the very expensive popcorn, drinks, and candy. Which
then maybe nets you a profit that keeps the doors open.

Also, gas stations are about the same... They don't make money on gas. They
make 70-90% of their profit when someone comes in and buys the cigarettes,
lotto tickets, and products.

------
lpolovets
I think this is like flight pricing. People don't typically think about
luggage fees, meal cost, wifi charges, etc. They only look at the flight price
and whether the flight time is convenient for them. This means
airlines/theaters are free to charge a premium once you've purchased the main
ticket.

Also, the numbers involved here are pretty low. I don't know many people who
would drive across town for a theater with cheaper popcorn, even if such a
theater existed.

------
kennethologist
This is why I love HN. A question as "simple" as this has sparked so much
discussion and as a result I have learned so much about the movie
showing/theater industry and how the business works.

Thanks mates!

------
trackofalljades
For the same reason porn is expensive inside a hotel, and not elsewhere.

------
michaelochurch
Price discrimination. Expensive food is a mechanism for bringing people closer
to their maximum willingness-to-pay by charging for a convenience: available
food that you can't be thrown out of the theater for eating. The high pricing
tier is patrons who buy the expensive food-- people for whom the price
difference between a $15-per-person movie experience and $10-per-person is
small. The low pricing tier is those who either eat before going to the movie
or who bring in their own food (taking a risk, albeit a small one, of being
caught and kicked out, which tends to ruin the experience).

Popcorn is especially easy to sell because of its low-volume-to-nourishment
ratio. You can buy candy at a corner store and sneak it in pretty easily, but
popcorn? It's less annoying just to pay the high price than to bring a large
bag of popcorn in. Same goes for those disgustingly large sodas.

