In a competitive market, why is movie theater popcorn expensive?
One explanation is that movie patrons are considering their total willingness to pay for the movie experience so that if the ticket price plus the market price of popcorn is less than their willingness to pay (WTP), the theater has an opportunity to extract more consumer surplus by charging higher than market prices for the popcorn (that is, price discrimination). There is a working paper on the subject by Gill and Hartmann (2008), the abstract of which reads: 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.  Locay and Rodriquez (1992) make a similar argument in a JPE article.  They essentially argue that purchases of things like movie tickets are made by groups; once individuals are constrained by the group's choice, the firm has additional market power: We present models in which price discrimination in the context of  a   two-part price can occur in some competitive markets. Purchases  take   place in groups, which choose which firms to patronize. While  firms   are perfectly competitive with respect to  groups, they have  some   market power over individual consumers, who are constrained  by their   groups' choices. We find that firms will charge an entry fee  that is    below marginal cost,  and  the  second part of  the  price is  marked   up  above marginal cost. The  markup not only is positive  but   increases with the quality of the product. The quote you are looking for is similar, and again attributes the discrepancy to price discrimination.  From the Armchair Economist (p. 159): The purpose of expensive popcorn is not to extract a lot of money from   customers. That purpose would be better served by cheap popcorn and   expensive movie tickets. Instead, the purpose of expensive popcorn is   to extract different sums from  different customers. Popcorn lovers,   who have more fun at the movies, pay more for their additional   pleasure. That is, some people like popcorn more than others.  The latter idea is that the movie experience for popcorn lovers is worth more than the sum of its parts: that a movie ticket + popcorn is worth more than either of them separately for some people. "A multiplex is a concession stand which happens to show movies in order to lure you into range of the smell of their popcorn. It has nothing to do with movie theater monopolies.  As it was explained to me by my manager, back when I worked in a movie theater in a small Midwestern chain, for every movie, the studios take some percentage cut of gross ticket sales, varying from movie to movie.  Star Wars: The Phantom Menace in 1999 was the first film for which the studio demanded 90% of gross ticket price — continuing a long-standing trend of raising the take which possibly began with the original first Star Wars movie.  The other studios quickly followed suit and raised their take to 90%, especially for the big blockbusters — the textbook term is ""oligopoly pricing"" — and since then the percentage has inched ever closer to 100%.  I forget exactly what it was on the second Matrix movie or Lord of the Rings: Return of the King, both of which premiered while I was at the theater, but the number that sticks in my head is 94%.  Obviously the studios can't directly capture any revenue from the sale of popcorn — unlike the movie, it's not their product — so every time they raise their take, the theater compensates for lost revenue by raising the price of popcorn. This trend hasn't reversed with 3D and IMAX and all the new technologies coming down the pike.  The only reason they're attractive to the theaters is that the theater can charge $15 a ticket rather than $10.  Even on a small percentage share, that's a 50% jump in revenue, and covers the not insignificant cost of the projection equipment.  3D is also currently getting more butts in seats than 2D was, leading to somewhat more concessions sales — going to the movies is an outing and an event again — though that's tapering off as it becomes less and less of a novelty.  The ticket prices aren't coming down, though. Moral of the story: like razors or printers, theaters lose a ton of money to show you movies due to studio oligopoly pricing, and make it up on popcorn." "To add to Jason's answer; a further mechanism is that of monopoly rents which you mention in your question.  Movie theatres are often in shopping complexes (which themselves may offer a particular cinema exclusivity), or physically remote from each other, making price comparison more difficult.  Different companies may not offer the same movies (similar to the way phone companies offer difficult-to-compare contract pricing). Once you've paid for your movie ticket, if you're suddenly thirsty or peckish, the theatre is the only place selling snacks.  Many theatres (including film theatres) discourage (or refuse) patrons from consuming products purchased elsewhere on site. A sense of ""capture"" is reinforced with ticket collection at the entrance or some form of barrier (inside vs outside the cordon). A theatre can thus capture their patrons and then leverage that access in order to discriminate amongst the higher-paying consumers mentioned by Jason." Movie theater popcorn concessions are not really a competitive market. "With all due respect to economics everywhere and the armchair economist. I think they overlook one very basic fact. The alternative to buying popcorn  at the cinema is buying it cheaper at the store, or making your own and bringing it to the cinema. Cinemagoing is something you tend to do with a date (and sometimes your friends) and who wants to look cheap to their date (and perhaps their spouse/friends) bringing popcorn to the cinema?  This ""cheapo-gentlemens"" effect together with convenience is probably the reason why popcorn can remain so expensive at cinemas." I think this question has more to do with the business model of cinema. If I remember correctly. Most of the money from ticket sales goes back to the studios. Something like the newer a movie is the greater percentage goes back to the movie studios and the older a movie is the greater percentage of ticket price goes to the cinema. So high priced popcorn and candy is often the only place where the individual theaters make any money. This may not be true for every movie but I believe it was the case for films like  James Cameron's Avatar. "It's called extracting consumer surplus. Basically I have a bunch of movie goers (who have paid a lot for their tickets). Some of them don't like popcorn, and some do. Of the people in the latter group, there are some who are willing to pay a lot for it. That's partly because I have a select group (rich movie goers) and partly because some of these people would be willing to pay more for popcorn with a movie than without. If I were just selling ""popcorn,"" I'd have to charge a competitive price. But I'm really selling movies, which have more than covered my costs (rent, heat, etc.) So my costs of selling popcorn are less than that of a non-movie popcorn seller, and I don't really ""need"" to sell it. Ironically, it means that I can ""take my chances"" and sell a relatively small amount at a high price, thereby maximizing my UNIT profit. I don't mind having people NOT buy popcorn because I've already made my profit from them with the movie. From the point of view of the consumer, most consumers see popcorn as an ""afterthought."" They will seldom  think, ""I can buy popcorn $2.00 cheaper at Theater A than Theater B, and there's a 20 percent chance that I will want to buy popcorn, so Theater A is 40 cents ($2.00*.20) cheaper than Theater B."" Instead, most make the decision to buy the popcorn after they've arrived at Theater B, because it as ""impulse item.""  And even if they do the ""40 cents"" calculation, Theater B might be selected because other factors (convenience, location, etc.) outweigh the 40 cent extra cost of popcorn (purchased ""sometimes""). Put another way, the cost of popcorn is (usually) heavily discounted because of its ""remoteness"" to other facets of the decision." Theaters make pennies off the tickets if any money at all. Their profits come from the concession stand. If a theater priced their popcorn 50 cents less than a nearby competing theater the few if any customers that notice and seek those small savings would be far less than the losses due to charging less. They compete to get you there: providing better sound systems, seating, screens -- even taking a loss on tickets with special deals (like Tuesday bargains). Once inside profit is made by customers willing to pay the concession price premium, and sour patch kids for 15 cents more isn't going to be a deal breaker. In my experience, there's usually only one or two theatres within a small city. Maybe a few more in larger cities, but those are also larger areas. So there really isn't much competition. Sure, there are other places to get popcorn, but not movie theatre popcorn. It won't be lathered with 4000 calories worth of tasty butter and salt. Even if you make it at home that can be difficult to accomplish (and then you have to invest the time to make it). Besides, when I go to the movies, I don't go just to see a movie. If I just want to see a movie I can watch it at home. The junk food they sell is part of the experience. Even then, people do smuggle their own food into theatres all the time - but it's hard to smuggle in a bag of popcorn, and again, ordinary popcorn just isn't the same. So, I think the answer boils down to: it's expensive because people are willing to pay for it. And they're willing to pay for it because it's not really available elsewhere at any better price, and it's part of what they come for. I'm kind of shocked that no formal behavioral modeling has been proposed as an explanation yet. One such model would be steep (hyperbolic, quasi-hyperbolic) discounting.  Consumers would rather pay for popcorn later than for an expensive movie ticket now.  For instance, consumers might when purchasing the ticket see a low value of popcorn and view the ticket price as the whole price because they do not predict purchasing popcorn.  Then when entering the theater, the present value of popcorn is very high and they purchase it.  There might therefore be a market for a commitment device (such as a popcornless theater) to make the appropriate decision ex-ante.  Another commitment device that seems to be practiced is when individuals sneak their own popcorn into the theater.  They may not actually want the popcorn, but by bringing their own they ensure they do not purchase the theater's. You're looking at this too rationally. People can not resist eating junk food, especially when they have to sit for 2-3 hours to watch a movie. It's pure biology, not economics. People don't always act according to economic logic. I think a labor management issue explains the high cost of popcorn. Some weeks theaters are loaded with patrons and other weeks there are many fewer patrons. If popcorn were priced so that most patrons bought some the theater manager would have to have lots of employees to sell popcorn on the really busy days. The manager would have to cover the cost of wages on the slow days. A simple solution would be to adjust employee hours. To a certain extent I suspect this is done. If you look at the situation from the standpoint of the employee being sent home early or being told not to work tomorrow or, perhaps for the next week because the theater has a bunch of bombs, is not a good situation. A job in popcorn sales is probably not a high paying job so the employees may just quit and they may do this, not by giving notice, but rather by not showing up for a scheduled shift. The result of this is that managers determine the maximum number of employees they can hire if there theater has low drawing movies and they set the price of popcorn so that when the theater is filled this number of employees will not be overwhelmed by patron buying popcorn. At least not to the extent that the start of the movie has to be delayed. John R. Lott, Jr. and Russell D. Roberts argue that popcorn in movie theaters has a price commensurate with its much higher cost. See also Lott's criticism of the Gil and Hartmann paper. The cost of the popcorn is simply the hidden extension of the price the consumer pays for the movie ticket. Similar to the tips in the restaurant. And movie theaters do not compete by lowering the unit price. Instead to maintain the revenue per customer they try to offer more value - bigger screen, better sound, more comfortable seats, etc. That is why the price of the popcorn just like the price of the ticket itself does not go down in the competitive market. In the theater, it's a person who can afford to buy expensive pop corn, cause he can buy the expensive movie ticket too... Also sitting at one place will make him feel hungry and buy something to eat... So maximum chances are that in the theater, that guy is your potential customer... Otherwise if the popcorn seller is somewhere outside the theater, they may charge you less. That's because of a different target audience... They would be targeting anyone who comes near the theater, who would not be willing to pay for expensive snacks or movie tickets... So very few customers around will be actually potential customers... To maximize their profits, they will keep the prices low and supply as much as they can... I know this is going against the normal Price Elasticity of Demand and Supply graph, but if the prices are low there will be high demand, so if the PED is more than 1, the supplier should supply as much as they can, to maximize profits... Its all based on the target audience... That's what I think should be the case of expensive popcorn in movie theaters... It's because true competition does not exist in the movie theater business. If you wanted to open up a competing theater whose competitive advantage was cheaper popcorn, you couldn't do it - the studios would never give you rights to screen popular new release movies.  I know this because there are indie movie theaters that constantly struggle to acquire screening rights, because the Regals and AMCs of the world work hard to maintain their monopoly by having exclusive licensing deals with studios. Effectively, studios and a couple major theater chains have gotten together and agreed to fix the price of popcorn.  So if you want cheaper popcorn, there are theaters where you'll find it - you just won't be watching Hollywood blockbuster new releases while you're eating it. "A better question would be to ask ""Why don't movie theaters charge to use the bathroom?"", or ""Why don't movie theaters charge for parking?"". In America, either government regulation or the mall itself forbids charging for parking, or limits the amount that can be charged for parking. This tends to be more true in suburban areas where land is cheap, but less true downtown in cities. The nearest theater to me is in a mall that is also on a metro line. Those who arrive by metro to see the movie are effectively subsidizing those who arrive via automobile and park. I don't know of any place in America that charges to use the bathroom, but the practice is still common in Europe. I saw the second The Matrix film in Brussels, and had to pay to pee. I'm not sure why this isn't the case in the U.S. Maybe there are widespread regulations against this. Or maybe it's a cultural thing, that we would be so offended by this that we would never go back to the theater." I think because that high price and the fact that you anyway have a limited time to buy it before the movie starts maximizes their revenue. While many answers correctly cite the effect of monopoly power.... there is a cost issue that no one has yet posted.  I first recall seeing this cost effect in a managerial econ textbook, perhaps Ivan Png's.   The theater must clean up the popcorn mess.  The sales of popcorn elsewhere does not usually include the costs of disposal because that cost is not borne by the vendor.   In a theater the cost of disposal -- which is a variable cost depending on the amount and type of foodstuff sold -- is borne by the vendor, who must pay employees to clean up between shows and at the end of the night.  While most people are responsible with popcorn, there is a long tail of more and more costly messes left by the customer...  and if the theater shirks the cost of cleaning the messes then rats with long tails will bite into future customer demand for tickets. Whether this cost effect is as large as the monopoly power effect and the synergy in willingness-to-pay between entertainment and refreshments is not clear.  All of these effects may be in operation. People have moods, that mean they don't have the same level of demand for luxuries every day.  There might be some days when I'm feeling a bit poor, or feel like I need to save money, and the price I'm prepared to pay for a box of popcorn might be 50c.  There might be other days, for example, the day after I receive my wages, when I feel rich and I don't care how much I spend on things.  On such a day, the price I'm prepared to pay for a box of popcorn might be $10. Now, when a supermarket sells popcorn, they're not really able to price discriminate between these two groups.  People come through their doors in all kinds of mood, so the profit-maximising price for popcorn is going to be somewhere in the middle. But the only people who go to a movie theatre are people who are already in the right mood to spend money on needless luxuries.  So the very fact of being in a movie theatre means that a popcorn stall, whether affiliated to the theatre or not, is open only to the high-spending end of the market.  They have already caught me when I'm in the mood to spend, so their profit-maximising price will be much higher than that of the supermarket.
A subsidy is a payment made by a group (usually the state) to individuals or corporations in order to shift the balance if the rational economic decision for the individual would be detrimental to the group as a whole otherwise. For example, if there are different quality kinds of crops that can be planted, for example a GM maize that brings in high yields but can only be processed to High Fructose Corn Syrup or a naturally bred corn that brings lower yields but tastes well enough for direct consumption, then if demand for both exceeds supply, the economic choice for the individual farmer is to plant the former. If the claims that HFCS contribute to obesity are founded, then it is in the public interest to produce less of it, and more alternative foods. Given that a market rather than a planned economy is desired, this cannot be achieved by decree, but rather money is used as an incentive. In the long term, this investment may very well pay off through reduced health care costs, so it is a rational economic decision from the state's point of view. In a world where all actors make decisions that are fully in their self interest, in principle subsidies would not be needed as consumers would demand healthy rather than cheap foods, and market mechanisms would provide these. Generally I drink the free water that they provide.   What I am saying is that if they lowered the price of the food and drinks, they might get more people in the door.  When it costs $50+ to go to the movies for a family of three, that family tends to not go out much. At the base of it all is the massive demand side subsidization of the health care industry primarily through Medicaid and Medicare. It's econ 101 that massive demand side subsidization drives prices up, but nobody wants to emphasize this point because too many pockets are being filled by the subsidization. "McDonalds has some more expensive items, but their ""Dollar Menu"" is ridiculously popular and supposedly a huge draw.  They've been trying to get rid of it for years because it's really hard to get anything decent for $1, but it's just too popular to cut.  (According to the random articles I've read about it.)  Other places don't really have anything like it.  At McDonalds you can get two $1.xx cheeseburgers and fill up pretty good for the cost of going to a vending machine.    While I very rarely go to any of these places, I do not agree that food is bad.  Tastes are subjective and what you get used to eating tastes good to you.   I remember that I used to absolutely love Taco Bell.  Then - after a few years of not going there - I went there and found everything to be absolutely disgusting.  But for a time, I thought it was the best stuff out there and there are a lot of people who like so called ""fast food"".  I do think the overarching point is true; customer tastes are fluid.  In the past 10-ish years, we've come to see a lot of ""gourmet"" burger places spreading like wildfire, for example.  But as long as fast food is cheap, they will continue to fill the market for cheap food." &gt;  It costs as much to project for one guy as for a packed house.  I don't have specific knowledge about movie licensing, but I'd be VERY surprised if the number of tickets to a given showing didn't factor into the actual price paid to the rights holder. I mean, we live in a world where ASCAP charges bars for jukebox plays based on an estimate of how many people in the bar could hear the song..... That is true. Since commodities are basically a futures contract, their actual price is not reflected in grocery stores. It is more of a supply and demand issue with your grocer. In some country's even retail competitors set up a cartel like scheme and they pressure the fuck out of farmer and producers to drop prices, and obey to their promotion's.  It's like they give them the volume to expand, and now that you are in a whole other level of production cut down prices or you'll be left with perishable goods with a limited shelf life, and no one to buy them. It's not actually fighting the paradox of choice, it's lowering the costs of supply chain management. A regular supermarket, for example, has to source 50 different varieties of hot sauce from different manufacturers. Trader Joe's has a couple of varieties of their own sauce, and it's delivered in the same truck that delivers 99% of their food.   People overlook this fact a lot - Trader Joes is a business that is vertically integrated, unlike any other supermarket. It's the combination of lower earning power and new technologies/trends.  Like you said, why spend $100 on a sit down meal for two and cinema tickets, when you can spend 1/3 of that, get an online delivery and watch Netflix (and chill)? "This is known as ""Zone Pricing"" or ""Geographical Pricing"". http://articles.latimes.com/2005/jun/19/business/fi-calprice19 Such price variations may seem odd, but they are not unique to Anaheim. On any given day, in any major U.S. city, a single brand of gasoline will sell for a wide range of prices even when the cost to make and deliver the fuel is the same. The primary culprit is zone pricing, a secret and pervasive oil company strategy to boost profits by charging dealers different amounts for fuel based on traffic volume, station amenities, nearby household incomes, the strength of competitors and other factors. It's a controversial strategy, but the courts have thus far deemed it legal, and the Federal Trade Commission recently said the effect on consumers was ambiguous because some customers got hurt by higher prices while others benefited from lower ones. http://en.wikipedia.org/wiki/Geographical_pricing Zone pricing, as practiced in the gasoline industry in the United States, is the pricing of gasoline based on a complex and secret weighting of factors, such as the number of competing stations, number of vehicles, average traffic flow, population density, and geographic characteristics. This can result in two branded gas stations only a few miles apart selling gasoline at a price differential of as much as $0.50 per gallon. But the short answer is ""because they can"". It's legal, provided that some people are paying less while others are paying more. Essentially the larger, richer audience is subsidizing the product for other areas. It's not terribly different than the way most drugs are priced in the world." I think they have a solid model, most theaters are empty most hours, so if this puts butts in seats, it's better than them going empty, and the theater mainly makes its money at the concession stand, so more people into the theater, more chances of making money off the concession. Only thing is that it might be too cheap.  I enjoy going to the movies and I'd have paid upwards of $50 for this even if I'd only go two-five times a month. This is just far too cheap and would necessitate having a ridiculous amount of people signed up for it. Don't discount regulatory issues (the mess that was CableCard, Tru2Way, tuning adapters, and the lack of AllVid) and monopolistic pressure (the cable companies liked receiving $5/box/month and don't want to give any of that income up, combined with fear of becoming the dumb pipe they really are so they applied as much pressure as possible against good regulations). The key is that you need to use your debit card to earn the higher interest rate. The bank can offer a higher interest rate on accounts connected with a debit card because: They earn additional income through debit card fees charged towards account holders, among other things. They offer the higher interest rate specifically to encourage people to use their debit cards. By offering a joint checking/savings account that requires you to use your debit card, the bank is assuming that you'll keep more money in your account than you would in a standard checking-only account. Your higher balance translates into more money the bank can loan out or invest, which usually leads to higher profit for them. Businesses pay fees to the bank to accept debit cards. These fees represent another source of profit for the bank. The more you use your debit card, the more the bank earns in fees, so the bank encourages you to use your debit card more frequently through incentives like a higher interest rate or waiving fees on your account if you use your card enough. Plus, since it's likely that an individual who maintains a fairly high balance in an account linked to a debit card is going to spend more (simply because they can spend more), banks will sometimes waive fees on the consumer side for balances over a certain amount. "E) Spend a small amount of that money on getting advice from a paid financial planner. (Not a broker or someone offering you ""free"" advice; their recommendations may be biased toward what makes them the most money).  A good financial planner will talk to you about your plans and expectations both short and long term, and about your risk tolerance (would a drop in value panic you even if you know it's likely to recover and average out in the long run, that sort of thing), and about how much time and effort you want to put into actively managing your portfolio. From those answers, they will generate an initial proposed plan, which will be tested against simulations of the stock market to make sure it holds up. Typically they'll do about 100 passes over the plan to get a sense of its probable risk versus growth-potential versus volatility, and tweak the plan until the normal volatility is within the range you've said you're comfortable with while trying to produce the best return with the least risk. This may not be a perfect plan for you -- but at the very least it will be an excellent starting point until you decide (if you ever do decide) that you've learned enough about investing that you want to do something different with the money. It's likely to be better advice than you'll get here simply because they can and will take the time to understand your specific needs rather than offering generalities because we're trying to write something that applies to many people, all of whom have different goals and time horizons and financial intestinal fortitude. As far as a house goes: Making the mistake of thinking of a house as an investment is a large part of the mindset that caused the Great Recession. Property can be an investment (or a business) or it can be something you're living in; never make the mistake of putting it in both categories at once. The time to buy a house is when you want a house, find a house you like in a neighborhood you like, expect not to move out of it for at least five years, can afford to put at least 20% down payment, and can afford the ongoing costs. Owning your home is not more grown-up, or necessarily financially advantageous even with the tax break, or in any other way required until and unless you will enjoy owning your home. (I bought at age 50ish, because I wanted a place around the corner from some of my best friends, because I wanted better noise isolation from my neighbors, because I wanted a garden, because I wanted to do some things that almost any landlord would object to, and because I'm handy enough that I can do a lot of the routine maintenance myself and enjoy doing it -- buy a house, get a free set of hobbies if you're into that. And part of the reason I could afford this house, and the changes that I've made to it, was that renting had allowed me to put more money into investments. My only regret is that I didn't realise how dumb it was not to max out my 401(k) match  until I'd been with the company for a decade ... that's free money I left on the table.)"