Wednesday, March 12, 2008
Posted by D. Daniel Sokol
Wesley R. Hartmann of Stanford University - Graduate School of Business and Ricard Gil of the University of California, Santa Cruz ask and answer Why Does Popcorn Cost So Much at the Movies? An Empirical Analysis of Metering Price Discrimination.
ABSTRACT: Prices for goods such as blades for razors, ink for printers and concessions at movies are often set well above cost. This paper empirically analyzes concession sales data from a chain of Spanish theaters to demonstrate that high prices on concessions reflect a profitable price discrimination strategy often referred to as metering price discrimination. Concessions are found to be purchased in greater amounts by customers that place greater value on attending the theater. In other words, the intensity of demand for admission is metered by concession sales. This implies that while some consumers' surplus may be reduced by the high concession prices, surplus of other consumers on the margin of attending may increase from theaters' decisions to shift their margins away from movies and toward concessions.