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]

Enrollment rates are far higher than completion rates. Many college students drop out before completing their degree. Less than 60 percent of first-time full-time students seeking a bachelor’s degree at four-year institutions in 2000-1 completed that goal at that institution within six years (it’s difficult to track students who transfer to other institutions).

In other words, enrolling in college is a bit like joining a health club. And as with a health club, the revenue comes from signing people up, not from encouraging them to use the services. [link]

It’s a tough problem, and the challenge is to find the balance between business and value. Focus on creating a product that’s valuable enough and people will see its value, even if it does take some time. The rest of the stuff usually sorts itself out. Simplistic? Yes. Cliched? Yes. But something to think about.

Duane Reade was a ratty little downtown cut-price operation until management decided that the key to drug retailing isn’t service—theirs was awful — but location. In the great space race of the last decade Duane Reades began to spring up everywhere there wasn’t a new bank branch going in. Result: there are 257 Duane Reades but independents got squeezed out. [link]

It’s a $1.08b deal, but almost half of that is Duane Reade’s debt.

…voluntary defaults are a new phenomenon. Time was, Americans would do anything to pay their mortgage — forgo a new car or a vacation, even put a younger family member to work. But the housing collapse left 10.7 million families owing more than their homes are worth. So some of them are making a calculated decision to hang onto their money and let their homes go. Is this irresponsible? [link]

The federal budget deficit was about $390 billion in the first quarter of fiscal year 2010, CBO estimates in its latest Monthly Budget Review—$56 billion more than for the same period in fiscal year 2009 despite reduced spending related to turmoil in the financial markets. Outlays were slightly lower than they were last year at this time, but revenues have fallen by about 11 percent. Later this month, CBO will issue new budget projections for 2010 and the following 10 years. [link]

These are estimates, of course, but it’s always interesting to hear what the CBO has to say.

The real unemployment rate–the share of Americans who say that they are actively looking for work and don’t have jobs–has been drifting down since late spring–from 9.7% in June to 9.4% in November. The seasonally-adjusted unemployment rate over that same period has risen from 9.5% to 10.0%, as the actual unemployment rate has drifted down much more slowly than it usually drifts down from June to November as things pile up for the Christmas rush.

This is how empires decline. It begins with a debt explosion. It ends with an inexorable reduction in the resources available for the Army, Navy, and Air Force. Which is why voters are right to worry about America’s debt crisis. According to a recent Rasmussen report, 42 percent of Americans now say that cutting the deficit in half by the end of the president’s first term should be the administration’s most important task—significantly more than the 24 percent who see health-care reform as the No. 1 priority. But cutting the deficit in half is simply not enough. If the United States doesn’t come up soon with a credible plan to restore the federal budget to balance over the next five to 10 years, the danger is very real that a debt crisis could lead to a major weakening of American power. [link]

By the way, Happy Hannukah!

RUSSIA was never an emerging market in the same mold as Brazil, China, and India, but the differences between the former and its acronymous partners have become crystal clear during the global recession. China’s statistics bureau reported today that Chinese industrial production grew by 19.2%, year-over-year, in November. Imports were up nearly 27%. And at present, China’s output growth in the third quarter was clocked at 8.9%.

Russia’s output also shifted 8.9%, year-on-year, in the third quarter. The shift just happened to be in the other direction. That’s an improvement from the 10.2% second quarter decline, but it’s still pretty awful. Forget the BRICs; Russia and Eastern Europe are forming their own exclusive club—of economies literally decimated by the financial crisis and global downturn. [link]

Motor vehicles added a whopping 1.66% of the 3.5% growth in Q3 GDP. More specifically, motor vehicle output was up… wait for it… 157.6% on an annualized basis. [link]

I believe with p = 0.6 that the world is in for a “great disruption.”  It has come to MSM first but it will not end there.  In the longer run I am optimistic about the results of this change — computers will free up lots of human labor — but in the meantime it will have drastic implications for income redistribution, across both individuals and across economic sectors.  For a core metaphor, the internet displacing paid journalism and classified ads is a good place to start.  The value of newspapers has been sucked into Google. [link]

And gives us some sound investment advice:

Suppose you were given a large amount of money (say $10 million) and you wanted to make sure that you would remain (relatively) wealthy in as many future states of the world as possible. Where would you invest it? Remote arable land? Organizing a cult of followers?

If you have $10 million, the safest thing to do is to diversify across currencies, buy government securities of various kinds, hold $1.5 million in gold, and otherwise not invest at all.  Oh yes, invest in some cheap hobbies.  In a real crunch remote land is worthless — transport costs — and your cult followers are as likely to betray you as not.  Trying to become a professor is no longer such a safe path. [link]