Every weekend, millions of Americans take part in a weekly ritual at their local movie theater.
I’m not talking about going to see a movie. Yes, people stand in line for tickets and sit through films every weekend, but the ritual I’m referring to is a little different.
Every weekend, millions of Americans stand in line at theater concession stands and ask,
Why are popcorn prices so high?
In an effort to make economics a little more relatable to everyday life, I’m going to answer that question.
Popcorn Prices Matter…for Stewardship?
Biblically speaking, this is a stewardship issue. Stewardship is a complex and subtle concept. Some think of it as an environmental issue, some as a household budget issue, and still others think of in different ways. The reality is that God rightly declares all creation his. Everything we do falls under the stewardship mandate.
One way to practice proper stewardship is to ensure goods and services flow to their highest valued use. This is a tricky thing to do, since consumers want to pay as low a price as possible and producers typically want higher prices without losing customers.
Adding a wrinkle to all of this is the fact that consumers differ in their willingness to pay. Some would pay a lot for something others would barely be willing to cross the street for.
Selling to this broad range of consumers may be profitable. But there is a catch: the producer does not know who is and who is not willing to pay a lot.
Why Popcorn Prices Are So High
Take movie theaters as an example. Some people love the movies and want to have the full movie experience of eating popcorn and drinking sodas and so forth. Others want a couple hours of entertainment and that’s it. Theater owners know there are these types of people, but they do not know who these different consumers are.
This lack of information puts theater owners at a disadvantage. If they set their prices low they are under-pricing their service, which is poor stewardship – it’s a disservice to their employees and just as inappropriate as over- pricing.
But if theater owners set prices too high, they fail to attract any customers and that is bad as well. In an effort to solve this conundrum, businesses have developed a strategy economists refer to as price discrimination.
Discrimination often rightly carries a negative connotation. In this instance, though, it simply means “separating,” and that can be done in many ways.
The way theater owners do this is by charging a relatively low price for admission into the movie. This allows everyone a chance to get in.
However, theater owners charge very high prices for popcorn and candy and soda for people who want the “full movie experience.” This is not everyone.
When I was a teen and in my early twenties, my friends and I wanted the soda and the popcorn when we went to the movies. Now, when I go out with my wife and kids, we do less. The lower ticket prices allow the six of us to go without breaking the bank.
Why It Matters
Price discrimination, the separating of potential buyers by price, actually allows more people to go to the movies while enabling theater owners and their employees to make a living.
It is also a better way to allocate resources. If theaters charged high ticket prices and low popcorn prices, fewer people would go to the movies. Students, folks on fixed incomes, and large families may never go.
We see price discrimination in many places; kids’ meals, senior discounts, different ticket prices for airline seats and so forth. Many consumers would not get service if not for this practice. They would be priced out of the market.
Price discrimination is a real benefit for large families and low-income families. It is also a benefit for families who may have made the decision to have a stay at home spouse in order to care for family and home. This often results in a lower household income. Price discrimination allows families in these situations to enjoy a movie, a vacation, or a dinner out once in awhile.
Price discrimination is a very effective way for businesses to expand the market, serve more people, and ensure that resources are used at maximum efficiency. In other words, it’s a way to practice good stewardship.
Think about this the next time you’re standing in line for popcorn at the movies. In the meantime, I’ll see you at the cineplex.
Leave your comments here.