A primer on pricing, Why is Movie Theatre Popcorn So Expensive?

 To say it is where the theatre owners make their profits is true, but begs the question of why they do not make the profits from ticket sales and sell more popcorn at closer to cost? Eating popcorn is certainly part of the experience of going to the movies, and people will pay for it, yet this explanation is still incomplete.

 

Assuming theatre owners want to maximise their profits, what do they know the rest of us, perhaps, do not? The consummate economist Steven Landsberg provides the answer:

 

I believe he knows this: some moviegoers like popcorn more than others. Cheap popcorn attracts popcorn lovers and makes them willing to pay a high price at the door. But to take advantage of that willingness, the owner must raise ticket prices so high that he drives away those who come only to see the movie. If there are enough non-snackers, the strategy of cheap popcorn can backfire.

 

The purpose of expensive popcorn is not to extract a lot of money from customers. That purpose would be better served by cheap popcorn and expensive movie tickets. Instead, the purpose of expensive popcorn is to extract different sums from different customers. Popcorn lovers, who have more fun at the movies, pay more for their additional pleasure (Landsberg, 1993).

 

This answer is more precise, since the important point is that “some moviegoers like popcorn more than others,” and the theatre owner cannot separate these customers when they are outside queueing up for the movie. A method was needed to separate the snack eaters from those who just want to watch the movie, which the concession stand provides since it allows the customers to divide and self-identify themselves. This may seem a subtle point, but it is highly profitable, since segmenting different types of customers allows the theatre owners to charge them varying prices depending on the value received.

 

Students, children, and people with large families are usually more price sensitive, and not likely candidates to spend money on snacks. The theatre owner does not want to turn these customers away, and hence keeps the box office price lower by charging higher prices to snack eaters. What you are really buying when you purchase a movie ticket is an opportunity set – a chance to enjoy the movie, or to enjoy it with popcorn. Economists call this a two-part tariff, defined as a pricing strategy in which the customer must pay a fee in exchange for the right to purchase the product. Examples abound of this strategy: country clubs charging membership fees and monthly dues; Gillette charging for the razor then the blades; amusement parks charging an entrance price followed by a price for each ride (R. Baker, Pricing on Purpose, 2006)