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.
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This new company will allow their digital analytics team to synch up conversions to demographics, and with their mobile phone, and any social media or Internet profile or public traffic associated with that phone.   This company will encourage signing in with your Facebook to permit Facebook api data scraping, and using your phone as the ticket device at the theater, giving them access to your geolocation. Just like yelp, it will send push notifications to you to encourage you to check out this new trailer based upon what it knows about you, thus becoming the newest and most targeted marketing channel for studios. "Didn't the US Government break up US Steel and Standard Oil with the Sherman Act for doing just this? monopolizing all aspects of an industry in effort to set prices(eventually artificially high). Specifically section 4.3 of the wiki article on Sherman act   Violations of the ""rule of reason"": A totality of the circumstances test, asking whether the challenged practice promotes or suppresses market competition. Unlike with per se violations, intent and motive are relevant when predicting future consequences. The rule of reason is said to be the ""traditional framework of analysis"" to determine whether Section 1 is violated.[25] The court analyzes ""facts peculiar to the business, the history of the restraining, and the reasons why it was imposed,""[26] to determine the effect on competition in the relevant product market.[27] A restraint violates Section 1 if it unreasonably restrains trade.[28]https://en.wikipedia.org/wiki/Sherman_Antitrust_Act  I don't care because I have a horse in the race, this is purely an academic question. if they start a delivery service it will directly effect the cost of shipping via ups usps and fedex and create an unfair market advantage? I'm also not saying amazon can't start a delivery service but i am interested in how they would have to go about doing so. would it have to be willing to ship non-amazon stuff? surcharges?" Unlike conventional retail stores, malls offer experiences, as /u/grant622 said. In a world dominated by social media, this not only provides businesses with free publicity if they execute well and people talk about what they did online, but it also provides an incredible amount of value to the consumer, and people are more likely to come in and buy even if they weren't necessarily planning on getting anything in the first place.  Movie theaters, bowling alleys, hell, even restaurants are basically becoming the foundation for retail businesses. I work in one of these , and the amount of customers we bring in from the area far exceeds that of any of the other businesses. Supply and demand... It creates an equilibrium.   Right now there is a food surplus so prices and production should go down.   If there is a food shortage... Prices should be allowed to go up which will create money-making opportunities and food production will increase.  The Communist types of US agriculture policies don't fix pricing, supply or demand issues.   Being able to produce agriculture products below cost creates a surplus that winds up getting dumped on other countries.   Government subsidy corn from the US has decimated the agriculture industries in countries that don't subsidize agriculture like Mexico.   Our communist types of agriculture policies hurt WAY more farmers than they help. Yeah.   They actually have said that their new strategy is not to make money from breakage (people who pay but don't use it). I believe they also guaranteed the $10 deal for a year, but I'm not at all certain so don't quote me on that :)   Instead, they want to make money from the data and, eventually, convince movie theaters to cut them in on sales and/or give them discounts on tickets... both of which depend on people actually using MoviePass.   I think those are really silly plans. The movie data is highly unlikely to cover the costs of the tickets that MoviePass has to buy.   Movie theaters, like studios, are stubborn bastards who have a history of sticking to their guns and refusing to budge even an inch when it comes to certain terms - they also have recently demonstrated a preference for building out their own direct-to-consumer offerings rather than cooperating with third party offerings.   I don't see them getting a ton more traffic from MP customers and more concession sales, and then deciding to give up any of their highly-prized concession sales - considering that most heavy theater-goers likely have a primary theater that they go to, it would probably make more sense for theaters to simply market their own offering to them in-theater and wait for MP to run out of money.   Finally, AMC is the biggest chain and actively wants this $10/month subscription to fail. AMC has announced that it absolutely will not give MP any deals on ticket prices (something that MP is counting on to make this sustainable). Maybe MP is counting on AMC to eventually change its mind, but I don't think that's a smart bet.   OTOH, what the hell do I know? I've been wrong plenty of times before :) "For example, Biff Spoiles started an animation studio and production developing company to produce animations -- something in the ballpark of $12,000,000.00 U.S.D. -- and he had a $12K/yearly salary. I have no clue what you mean, as others have mentioned. (I'm not sure what the ""12 million"" refers to?  Do you mean ""total cost of animations created by the company in a year"" or?  If so, ""12 million"" would amount to say 5 to 20 major, brand name TV commercials, for example.  Do you mean the ""cost of plant"" - so, for a ""TV commercial production company"" you mean purchasing desks, drawing pads, Porsches, and so on?) Your specific example of a ""film or TV-commercial production company"" is a bad example, it's not really a ""business"" - that is to say, it does not rely on capital and return on capital. The way famous ""film or TV-commercial production companies"" happens is precisely like this: A young guy/girl G (perhaps a designer or filmmaker) is working, just as you say, for a menial wage at a film company. (G got that first job perhaps out of art school.)  G gets a chance at doing a photo shoot, animation, or helping direct a TV commercial.  G does a fantastic job. Later that year, a large important animation or commercial job arrives at the company; due to the earlier excellent result, G is allowed to work on the new one. G again he does a fantastic job.  Soon, within that company, G is a highly-regarded animator or director and has attracted fame amongst colleagues and clients. Eventually, G hears of a company (XYZ Hotel) that needs a TV ad made. (Or an animation, or whatever.) G says to XYZ, look, you could spend $230,000 with a production company, and in reality they'd have me direct it anyway. I'm leaving to work independently, so I will do your job for only $190,000. In a word, XYZ says ""Yes"" and hands over a cheque for $190,000.  G spends $160,000 on the usual actors, cameramen, editing, etc, and uses 2 months of G's own time, and pockets $5000 after tax. G then doesn't get a job for a couple months, and then gets three more in the new year. Because the commercial for XYZ was so good, XYZ gave him another couple to do, for another product line. Eventually G has just enough money coming in that he ""hires"" a few freelance people for a few weeks here and there ... a cameraman, illustrator, gopher, and so on.  Eventually G has enough TV ads solidly booked G can risk actually hiring long-time friend P as a producer.  P spends most of her time actually bringing in more work - and it builds from there. Eventually. You have a very busy, well-known in the industry, TV commercial production company with many staff and endless clients (example, say, http://rsafilms.com) It might be at some point in there (say, around year three), G would like to borrow the odd million bucks to basically ""help with cashflow."" The answer to that is nothing more than ""through business contacts, G knows a wealthy dentist/whoever who is prepared to do that."" But note carefully that at that point, G's company is already very firmly established, famous for doing 20 spectacular animations/commercials, and so on.  (Note too that 999 times out of 1000 when this happens, the money evaporates and the dentist D never sees a penny back. In that case G ""apologizes"".) Only much much later once the company has many, many staff and great cashflow, could the production company actually borrow from a bank, or perhaps from ""actual investors"", which is more what you have in mind. regarding your four categories.  Numbers 1 and 3 are totally wrong; they do not work at all like you are asking. indeed the very simple answer is: ""borrow money"" to start a category 1 or 3 type of business. It's totally inconceivable. (The only exception would be if you literally just have an extremely rich Uncle, who loans you a few million to ""start an animation studio"" - which would be completely whacky.  Because in that example: company XYZ could not care less if you ""have"" an animation studio (ie: your Uncle has given you a platinum card, and you bought a building, some drawing pads, and a few dozen Macs).  XYZ just couldn't care less.  All they care about is your folio of work.  In this example, RSA would get the job  :)  ) My guess is you're thinking people somehow magically go around ""borrowing money"" to get businesses like that started.  (Your examples 1 and 3.) The simple answer is they don't and can't -  your fears are assuaged!  :)" “From time to time, Netflix plans and pricing are adjusted as we add more exclusive TV shows and movies, introduce new product features and improve the overall Netflix experience to help members find something great to watch even faster,” the spokesperson told Gizmodo.  One of the big reason Netflix is doing their own content is because the ever increasing price of securing television shows and the unreliability of it. Often contracts will be up and the provider decides not to renew.  To include the cost of doing business in producing shows as an excuse to raise prices is little more than an excuse. Netflix is going to start spending less money retaining not Netflix shows.  Just admit that costs are going up and Netflix wants more money.   One side note. Netflix produces a lot of good shows. They also produce a lot of crappy shows that bomb. A better quality control would help them save money.