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1. It's not a competitive market; each person who wants to watch a particular movie only has between one and maybe four choices of venue until the travel costs outstrip any differences in price. Any number of these could be owned by the same chain.

2. In addition, there's no way to compare concession prices easily before making that choice; once the potential buyer of popcorn, even assuming they're looking at the popcorn prices before buying a ticket, has seen those prices, they need to add the relative travel time to speculative estimates of other theaters' popcorn prices.

3. Lastly, they collude, and all the prices are about the same. Good luck getting somebody to let you run their movie in your theater-killer that leads on concession prices. Vertical integration was a term invented about the movie theater industry; contracts are in place.

1 comments

Re #3: Game theory suggests theaters can approach the same higher prices without colluding. Seeing as how price collusion is illegal (in the U.S.), and the results are reachable in another way, the accusation isn't necessary.

I'm curious what the effective difference to society is between a group of businesses all agreeing not to compete on price, and a group of businesses which each individually decides not to compete on price.

Maybe not necessary, but likely accurate. You can say that price collusion is illegal but until those laws are enforced that's not much of an argument one way or another.

Game theory assumes all agents are rational. They aren't. Pricing popcorn 20% below a competitor may seem like a good idea to a business owner and may indeed sway a consumer to return (people say things like "the ticket is more expensive, but I think the cheaper popcorn is worth it", even though numerically, it isn't)

If there is only some token competition on popcorn prices and there is research showing that that usually doesn't happen in real markets, then that is a pretty strong suggestion they are colluding.