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Scott Jagow: In certain movie theaters in Britain today, there's no popcorn. The Picturehouse theater chain has banned popcorn on Tuesdays. The company says some people just hate it. The taste, the smell, the noise. And of course, the price. A big tub of popcorn costs about 60 cents. But at the movies, you pay $7 or $8. There's actually a new book about this and other pricing puzzles. Richard McKenzie wrote "Why Popcorn Costs So Much at the Movies." Richard, why does it?
Richard McKenzie: One of the reasons that popcorn is so expensive is that theaters see themselves in the concession business. James Edwards, founder of the Edwards theater chain, once said, "I show you movies in order to sell popcorn." And over half of the gate receipts at movie theaters can go to the studios.
McKenzie: So, what you want to do is keep the price of the tickets down in order that you can raise the price of popcorn.
Jagow: And people are willing to pay the price because it's convenient.
McKenzie: It's convenient. It's also what the theater industry calls smellable, audible, edible.
Jagow: It suckers me in every single time without fail. Even if I say I don't want popcorn, you get there, and the smell -- it's, it's over.
McKenzie: And once they get you hooked, I mean, there are all kinds of chemicals being released in the brain and so forth that makes movie goers price insensitive.
Jagow: Now let's talk about the different sizes and explain to us what the best value is for your money with popcorn.
McKenzie: OK, well, what the theaters are doing is walking you up your demand curve and charging you a high price for the first few ounces, then they're sort of walking you down. They know they can sell you more, but they've got to drastically lower the price on those marginal ounces.
Jagow: Show us what you're talking about.
McKenzie: OK, what I'm going to do is pour out the contents of a full tub of popcorn, the large. [sound of popcorn pouring out out of a tub] And then I'm going to take the medium bag and I'm going to pour it into the tub. [sound of popcorn pouring into a tub] And as you can see...
Jagow: It overflows.
McKenzie: It's on the floor.
Jagow: So, why do people buy the large?
McKenzie: Well, I think some of them think that they're getting more popcorn. But you also get the option of free refills. And there are some customers who will buy the tub and then on the way out of the theater ask for another refill ...
Jagow: You're kidding.
McKenzie: ... to take it home. And once you get two refills, you've got the price of the popcorn at the margin, down to less than 8 cents an ounce. But ...
Jagow: That's a heck of a lot of popcorn.
McKenzie: I have to warn you that if you get a tub, refill it twice and smother all three tubs with butter, you're going to be consuming the calories recommended for an adult male for three days.
Jagow: Geez, sound's awful. And is this psychological pricing or is there an economic reason behind it?
McKenzie" Oh, yeah. The fundamental law of economics is the law of demand. What they're doing is simply charging you more on those very first few ounces, and you're willing to pay more for those first few ounces, by the law of demand. But to get you to buy more, they gotta lower the price drastically.
Jagow: Richard McKenzie. His book is called "Why Popcorn Costs So Much at the Movies." Thanks for joining us.
McKenzie: Thank you.