Wednesday, August 5, 2015

WHY IS POPCORN SO EXPENSIVE AT MOVIE THEATERS?DOES THIS HAVE TO DO WITH MONOPOLY POWER OR SOMETHING?

Once again, yes, you're right.  This has to do with monopoly power and price elasticity of demand.


Price elasticity of demand is a measure of how much LESS people buy of something as its price goes UP.  When there are substitutes for a good, its elasticity is high.  That means that if its price goes up, people will buy way less of it.


Inside a movie theater, there is no substitute for popcorn.  You can't bring your own in.  So price elasticity of demand is low.  When price elasticity of demand is low, it makes sense for a seller to raise prices because they can make more money that way.


So, because the concession stand is a monopoly, demand for popcorn is relatively inelastic and the concessions people can raise the price pretty high.

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