Why do movie theaters charge 4 dollars for a soda which I can purchase at McDonald’s or a gas station for about 99 cents? That movie theater popcorn and soda prices are so “outrageous” used to really annoy me. Surely there’s an economic reason though that sodas at theaters are priced so much higher than they are at other places. When one purchases a ticket and enters the theater, movie theater rules prevent them from bringing in food and drink purchased from other locations. Essentially this restriction allows the theater a 2 hour monopoly on the supply of drink and snack items. For soda purchasers, instead of facing a supply curve where a large number of sellers such as convenience stores and fast food chains are selling, they’re facing a monopolistic supply curve with one supplier. Equilibrium prices are higher than they otherwise would be because of this. Of course, movie theaters wouldn’t charge these high prices for soda if patrons weren’t purchasing 4 dollar drinks. Who in their right mind is willing to pay $4 for a soda? Apparently a lot of people. I’ll admit that usually I’ll purchase at least a soda if not both a soda and popcorn when I watch a movie. This says something about the price elasticity of demand for sodas for movie goers. Elasticity must be lower in the movie theater environment that it is outside. Maybe because movies and sodas are complimentary, patrons have higher incentive to consume them together. It seems like this would lower elasticity and help explain why movie theaters sell 4 dollar sodas and why movie goers are actually willing to pay those prices.
I recently read an article that theater’s actually make 85% of their profit from concessions rather than the screening of the films themselves. If that is true, it would further incentivize the theater to be a profit maximizer of concessions. http://business.time.com/2009/12/07/movie-theaters-make-85-profit-at-concession-stands/
I go to movie theaters once a week. Mostly I would like to buy sodas in the convenient stores or supermarkets because of the lower price. If the price of a soda in movie theaters decreases to the market equilibrium price, then more people would like to buy sodas there, which would also increase the selling of popcorns. Because popcorns and sodas are complimentary products. People who go to McDonald will more or less buy sodas. If the movie theater can do the same thing as McDonald that people who go to movie theaters will buy sodas, then the profits of selling sodas will increase but not decease. At the same time, the selling of popcorns will increase too, which will bring more profits for the movie theater.
The statistics about the profits that movie theaters make on their concessions always amaze me. I attend movie theaters somewhat regularly and I never feel the need to pay for their overpriced food and drink. Friends and family who attend these movies with me also rarely decide to purchase concessions as well because it is just so much cheaper to wait and eat later or sneak in a regularly priced candy bar than it is to pay for one inside.