Wednesday, September 11, 2019

Expensive popcorn in movie theaters = indirect price discrimination.


This article from the Hustle (Sept. 2019) describes pricing in movie theaters. Some key points.

  1. The commission theaters must pay on revenues from ticket sales reduces the incentive to increase the price of a ticket.
  2. "This strategy of selling a primary good at cost (or at a loss) and making the bulk of profit on a complementary good (like popcorn) is a form of the widely employed razor and blades business model. Microsoft, for instance, will sell its Xbox consoles at a steep loss to get people to buy them, then make healthy returns on games and accessories."
  3. "Gil, along with a colleague from Stanford, analyzed 5 years’ worth of revenue data from a major movie chain and found a different motivation for expensive popcorn: Theaters use it as a way to price discriminate, or charge customers varying prices for the same experience (in this case, seeing a movie)."

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