The Popcorn Quandary
With the release of Bond’s new film ‘Spectre’ the
other night, my friends and I decided to pay a visit to the cinema. Whilst we
waited in the queue to get to our sofas, I couldn’t help but hear someone
uttering that, “Popcorn is so expensive as soon as you step through the
glass doors into ‘Everyman’!” (or any other cinema for that matter). As a
keen Economist I wanted to get to the bottom of this age-old issue.
Now, the glaringly obvious answer, which seems to
reverberate in our ears, is in fact not true. As soon as we enter the doors it
does not mean that the cinema has a monopoly and can charge us whatever they
want for whatever we want, as some would suggest. It has been said that the
cinema tries to ensure that the spread between the cost of popcorn and what you
are willing to pay is at its highest in order to maximise profits. However, if
this ‘monopolistic view’ were the case, then we would be charged for using the
bathroom. But we are not.
Contrastingly, cinema owners argue that they must
charge high prices for popcorn in order to ensure that the cinema survives.
Indeed, it has been revealed that movie studios charge cinemas between 30 and
40pc of the total box office revenue. Therefore, in order to cover 3D viewing,
air conditioning, maintenance, sound systems and the like, the cinema needs to
find a way to extract more from its customers. Charging more for admissions
tickets is not as appealing an option as charging more for concessions, for as
we have noted 40pc, (and indeed in some cases up to 70pc), of box office
revenue does not in fact reach the cinema owners’ pockets, whereas the extra
money from increased popcorn prices goes directly to the cinema. Reducing the
admission fee by £1 and increasing the price of popcorn by £1 will generate more
profit. Moreover, charging higher prices for tickets would not seem to be a
rational decision in a highly competitive market where customers could just as
easily watch the desired film at a nearby cinema. It could be suggested that
lowering the price of popcorn would increase sales, thus increasing profits,
allowing the cinema to cover these costs. However, this is not the case, for
higher prices but fewer customers generate more profit than cheaper concessions
and a few more customers.
However, in my view, cinemas seem to be par taking in
price discrimination. Despite the word ‘discrimination’, and the negative
connotations of high popcorn prices, cinemas are actually following Adam
Smith’s invisible hand, ensuring that more people can watch the film through
pursuing higher profits. By charging less at the box office and more at the
concession stand, they are creating incentives for the marginal customer to see
the film, as the admission ticket is cheaper and they do not have to purchase
snacks. The decrease in consumer surplus from concessions is more than
outweighed by the increase in affordability of tickets. The cinema-lovers still
spend as much money as they would have had the admission tickets been more
expensive, because, as avid movie lovers, they still purchase popcorn and other
concessions. Therefore, more profit is generated as more people now attend the
cinema than if the admissions tickets been more expensive than the
popcorn.
So when you go to see Spectre, (a must see if you
haven’t already), and your friends ask why the price of popcorn is so high,
enlighten them with your knowledge of Economics.
Warning: you may not be invited to the cinema
again.
