Does This Pop Your Corn?

Since we’re talking about movies and documentaries today, this post from Marginal Revolution rounds out the trifecta pretty well:

I’ve lately found a new empirical paper on why popcorn is so expensive in the movie theater.  The authors are Ricard Gil and Wesley Hartmann.  Here is the abstract:

Prices for goods such as blades for razors, ink for printers and concessions at movies are often set well above cost. Theory has shown that this could yield a profitable price discrimination strategy often termed “metering.” 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. This paper develops a simple aggregate model of discrete-continuous demand to motivate how this correlation can be tested using simple regression techniques and readily available firm data. Model simulations illustrate that the regressions can be used to predict whether aftermarket prices should be above, below or equal to their marginal cost. We then apply the approach to box-office and concession data from a chain of Spanish theaters and find that high priced concessions do extract more surplus from customers with a greater willingness to pay for the admission ticket.

In other words, price discrimination is one (not the only) plausible rationale for why popcorn is so expensive at the movie theater, relative to marginal cost.  For other MR posts, on this problem, type “popcorn” into the MR search box on the left hand side of the page. [link]

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