Stanford Research: The Pricing Lessons of Movie Popcorn

If you've ever thought that movie theaters charge top prices for popcorn and soda just because they can, new research from the Stanford Graduate School of Business shows that theaters actually have good reason for high concession costs.

Stanford GSB professor Wesley Hartmann and University of California, Santa Cruz professor Ricard Gil found that charging more for concessions allowed movie theaters to keep ticket prices (at least relatively) low. The study has implications for how businesses should price primary and secondary items.

The researchers came to this conclusion by studying a chain of movie theaters in Spain during both high- and low-attendance weeks. Those who saw movies during low-attendance weeks were deemed movie "diehards," and these attendees bought more popcorn than their occasional movie-going counterparts.
As Hartmann explained in a Stanford press release, "The fact that the people who show up only for good or popular movies consume a lot less popcorn means that the total they pay is substantially less than that of people who will come to see anything. If you want to bring more consumers into the market, you need to keep ticket prices lower to attract them."

Therefore, making up the profit margins on secondary items benefits both consumers and businesses.

So what's the takeaway?

"The argument that pricing secondary goods higher than primary goods can benefit consumers has been circulating for decades, but until now, no one has looked at hard data to see whether it's true or not," said Hartmann. Now you know.

Image courtesy of Flickr user glindsay65, CC 2.0.