Movie and popcorn prices

An interesting comparison on popcorn and movie prices on Gizmodo. It compares prices from 1929 to today. Amazingly, they actually do the comparison in real terms, but don't cite what price index they used to adjust the 1929 prices to today's dollars. I checked the work using FRED's CPI database. Pretty close.

So what could explain why the huge difference in concession prices? My first thought is the vertical relationships prior to a, I think, Supreme Court decision that broke up the movie studio-movie theater relationship. Prior to that decision, movie studios actually owned movie theaters. It could be the case that the concessions were priced at marginal cost, while the fixed cost of the movie (the movie ticket) was set somewhat high. This is the idea behind a two-part tariff in microeconomics.

So why the big difference now despite the break up the vertical relationship? That's a tougher question. And here's an economics paper that looks at it. It's what economists call metering demand. And it's about tied goods. The basic premise is that the concession prices serve as a meter for demand for the entry good (the movie ticket). If these two are highly correlated, then the movie theater can charge more for both goods from higher type people. By higher type, I mean people who want both goods and are willing to pay for them. Hartmann and Gil show that when marginal customers are lured into the theater (more attendance), the average concession revenue decreases. This means these marginal consumers consume fewer concessions and fits with economic theory that justifies charging a premium on concessions to price discriminate.