Popcorn and soda are a huge part of going to the movies. But are they a treat or a rip-off ?
Last month, Joshua Thompson, a disgruntled moviegoer in Michigan, sued American theatre chain AMC, citing grossly excessive concession prices. “It’s hard to justify prices that are three or four times higher than anywhere else,” his lawyer Kerry Morgan told the Detroit Free Press . He plans to seek redress under state consumer protection laws.
There is no question popcorn and soda pop prices at North American theatres far exceed what you’d pay to enjoy the same goods at home. So why do we pay? It turns out popcorn has a story to tell about economics and consumer preferences that goes far beyond the silver screen.
Richard B. McKenzie is an economist at University of California, Irvine, and arguably the world’s expert on movie theatre popcorn, being the author of the book Why Popcorn Costs So Much at the Movies and Other Pricing Puzzles.
At fi rst sniff , McKenzie admits movie popcorn appears exceptionally lucrative. Based on the cost of raw materials alone, the profit margin approaches 98%. But there’smore at work at the concession stand than input cost. McKenzie notes that theatres are entertainment venues, not grocery stores. And they’re selling edible and visual enjoyment you can’t get at home. “You are not just buying popcorn. You are buying an experience that includes a movie and bag of popcorn together.” This sort of experiential bundling is familiar to anyone who has paid $10 for a beer at a hockey game or downed an overpriced hotdog in a baseball stadium. As a package, it is so pleasurable that people are prepared to pay more.
McKenzie adds that high popcorn prices are good for society. Theatres make money on a combination of ticket and snack sales. Since ticket revenue must be shared with movie distributors, it makes sense for theatres to keep ticket prices low: they draw more people, who then head to the concession stand. “I show you movies in order to sell popcorn,” U.S. theatre magnate James Edwards once quipped. Without popcorn, McKenzie fi gures ticket prices would double. This means popcorn- eaters are eff ectively subsidizing movie lovers who choose not to eat while they watch.
The advantage of bundled goods, despite the grumbling they inspire, has relevance beyond entertainment, as Tim Hortons knows well. A recent class-action suit by franchisees alleged the chain conspired to gouge them by converting to prebaked doughnuts, which lowered profi t margins on baked goods. In dismissing the suit, the judge ruled it was foolish to focus solely on the profi tability of a maple frosted to the exclusion other menu items—notably coff ee, the chain’s highest-margin product. While franchisees complained about doughnut earnings, they conveniently ignored the fantastic profi ts on coff ee. What was relevant, the judge said, was how this pair worked as a bundle.
All of which suggests that those of us who drink coff ee are subsidizing the doughnut eaters at Tim Hortons. So eat up.
Peter Shawn Taylor is a writer specializing in economic issues.