Popping mad? | tutor2u Economics

Popcorn may expand to over 40 times its original size, but that's nothing compared to the price consumers are paying for these exploded kernels in their local cinemas. So why are we willing to dig deep for our favourite movie compliment?

This is certainly not the first time that the price of popcorn has been raised as an issue. Back in 2008 Geoff Riley blogged about it and his thoughts can be found here , but it is worth revisiting the debate after the 'venerable' George Galloway MP placed an Early Day Motion on the subject and can be heard discussing the issue on the BBC here .

According to Galloway popcorn has 1000% price mark-up, with Coke and Ben and Jerry's each being inflated in the region of 700-800%. So why are cinema goes happy to pay these absurdly inflated prices? Well Geoff Riley suggests two reasons why, the first is if cinema goers think they have got a good deal on their ticket price then they are perhaps more willing to pay a premium for their popcorn. Ticket prices have historically tracked inflation reasonably closely, but since 2010 there has been a noticeable increase in the average price due to, it is claimed, 3D tickets that are charged at a premium price. The consequence in UK has been that admissions to UK cinemas decreased by 2.5 per cent in 2010, breaking a run of three years of consecutive growth. You could argue a number of reasons for this decline - online streaming, home cinemas, recession? However, perhaps it suggests that cinema goes no longer feel as though they are in fact getting a good price for the ticket, yet continue to purchase inflated food prices before taking their seats. 

Geoff's second argument centers on the idea that it is sales per customer which is significant, and it is the 'hard-core' cinema goers who consume a lot of popcorn when they go and watch movies both at peak and off-peak times, whilst the casual cinema goer has a lower per capita demand. This may well be true, but the casual cinema goer is likely to want the full cinema experience and for most this will include popcorn, sweets and a drink. So, is it simply this, the desire for the complete 'experience'? Well George Galloway iludes to 'pester power' - parents being unable to take their children to the cinema and passing the confectionary section without being relieved of significant amount of money.

Is the answer simply that cinemas are a local monopoly, as George Galloway says, cinemas operate like private clubs. They are able to refuse entry, eject customers, as well as choose what they sell and, more importantly, at what price. This would suggest that confectionary within cinemas is highly price inelastic, but is simply raising the price going to lead to increased total revenue? Perhaps, but it has been known for customers to bring their own suppliers into the cinema, even if this is prohibited by the cinema.

Journalist Charles Gant said that it is important to remember that the portion of the ticket price kept by the cinema isn't really enough to pay for the costs of the business, they need to make their money from concessions, which is why they're so expensive. So customers should not think in terms of the price of food and drink being a form of profiteering, but rather the high cost is enabling the individual to be able to walk through the cinema's doors at all. This maybe true, but is it acceptable? Does the industry need to address the imbalance in revenue flows in order to ensure cinemas are not relying on concessions to cover their operating costs. Do cinemas need to face the fact that people are consuming movies in different ways now? Does their need to be more competition between cinemas? Does their need to be more competition within the cinemas between confectionary sellers? Do cinema goes need to consider the ethics of sneaking their own food and drink into the movies?

More questions than answers, but it's an interesting debate.

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