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Popcorn Subsidies

Consider this for a moment: if you go to see a movie this Saturday night, the ticket will probably cost between $8 and $10; if you want a bucket of popcorn, you'll probably pay at least another $5 for the salty snack. On the other hand, one of my favorite bars has a popcorn machine, just like at the movies, and if you go into there this Saturday night, you can eat as much popcorn as you'd like, and it's free!

(from flickr user Justinsanity)

Popcorn at the movies is the quintessential "pricing puzzle". Everyone wants to know why it costs to much to buy something that they know costs almost nothing to produce. Further, how does the bar get away with passing out free popcorn while the movie theater charges an obviously inflated price?

The answer is that in both cases popcorn is being used as part of a cross-subsidy. In the case of the movie theater, popcorn is subsidizing the ticket cost; but in the case of the bar, popcorn is being subsidized by beer and other drinks.

Think of it this way... the goal of a theater manager is to fill every seat at every show. How can she do this? By changing a low enough price so that enough people will come and fill the theater. Of course, she doesn't want to price the tickets too low, or she won't be able to make any money. The solution is to overcharge for popcorn, candy, soft drinks, and other concessions that she knows some people will inevitably buy anyways. In fact, the more people who buy a ticket to the movie, the more potential concession customers this manager gets.

The bar, on the other hand, is making most of its money by selling high-margin alcoholic drinks. The role of popcorn (or peanuts or pretzels or whatever else) is to encourage people to buy as many drinks as possibly. Filling peoples' stomachs with a cheap food like popcorn is the perfect way for the bar to keep people drinking all night and making the bar owner a rich man.

I almost never buy concessions at the movies, I've often heard people make comments about what 'suckers' the people in line for popcorn are. Maybe so... but I don't mind, if it means I get a cheaper ticket to the same movie, who am I to judge?

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