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Household behavior forms an interesting area of study for economists given that the human aspect involved in making of economic decisions by a household vary a lot depending on the perception of a commodity or service in the market. This is done in the view of gaining a certain level of utility only known to the consumer. One such area that has attracted scrutiny is the consumption and pricing of movie tickets and goods sold in the movie theaters. An article by Jennifer McNulty titled “Concessions on Movie Ticket Pricing? details the tricks present in the pricing of movie tickets and products such as popcorn crisps and soft drinks sold in the movie theaters. This paper critically analyses this article and discusses the economic sense in the article plus a reflection on the whole issue. Article review In this article the writer is worried about the high charges of popcorn in movie theaters than in ordinary shopping outlets.
This she poses as the introductory question in the article asking “why does popcorn cost so much at the movies? ” She notes that despite the high prices, movie goers are always willing to pay the high prices charged for the popcorn as evidenced by “all the people standing in line waiting to buy popcorn, soft drinks, and candy”. The author notifies us of the findings of a research by Stanford and the University of California, Santa Cruz that reveals the trick behind this idea.
The findings show that charging lower prices for primary products in this case movie tickets and charging higher prices for secondary products in this case popcorn, beverages, peanuts etc drives the customer into seeing the bargain in the primary product and not the overcharging in the secondary product. This will always keep demand for both high courtesy of low price tickets. The author says “If you want to bring more consumers into the market, you need to keep ticket prices lower to attract them”.
Products sold in movie theaters are charged on concession basis in that there is an added price on the product as a “commission” to the vendor. They account a lot in term of revenue for movie theaters as Jennifer says that “movie exhibition houses rely on concession sales to keep their businesses viable”. The idea according to Jennifer is that movie theaters transfer some movie charges to the concession goods. This then increases demand for movie tickets and revenues high but profits low.
From the article we see that “Although concessions account for only about 20 percent of gross revenues, they represent some 40 percent of theaters’ profits”. Therefore it would seem that it is better to charge low prices for tickets so as movie consumers are made to believe that they have “saved” some amount on which they can spend on the concession goods. Unfortunately, this is just an illusion as the moviegoer ends spending more. Economic analysis of the article The movie theaters have hinged their business sense on the demand elasticity in response to price changes.
They have noted that a proportionate increase in the price of movie tickets leads to a more than proportionate drop in demand of movie tickets. Therefore we would say that demand for movie tickets is perfectly elastic to price changes. On the other hand, demand for concession goods is not affected, as per the article by change in prices thus perfectly inelastic. Nevertheless, we would normally expect perfect some degree of elasticity when prices are increased to inconsiderate levels.
This would probably force moviegoers to carry along products that they could have otherwise bought at the theater. From another economic perspective, we can say that there is a level of complementarity between the movie tickets and the concession goods though it is one sided. This is because of the fact that concession goods will and can only be consumed after purchasing a movie ticket. However, one can consume a purchase/consume a movie ticket without necessarily having to purchase any of the concession goods on sale in the theater.
For fully complementary goods, it is impossible to consume one good in the absence of the other. In such cases, the price and demand of one affects the other. In the case of movie tickets and concession goods, the demand for movie tickets leads to a considerable increase in the demand for the more profitable concession goods. Unfortunately, demand for concession goods does not in any way affect the demand for movie tickets as a consumer can make use of the movie ticket alone without the concession good. Reflection
Consumption of leisure hours by households do not usually follow economic principles witnessed in other goods and services. Households attach levels of utility on leisure hours as determined by fashion trends and culture. The idea of purchasing and consuming goods such as popcorns and peanuts in the movie theaters is something that has been nurtured by today’s generation and fashion. This is what is demonstrated in the article in that there is no economic sense that can link any complementing aspect between concession goods and movie tickets but just a creation of our society.
It is thus the movie theaters that have capitalized on this fallacy to gain profits. I would personally think that the movie theaters have succeeded in making the best use an economic opportunity and are creating and inducing demand for otherwise low selling products in the name of concession goods. Therefore, the article plays its purpose of informing the moviegoers of where they “cheated”. In economic sense, the paper shows the power of elasticity in action.