Review of Why Popcorn Costs So Much at the Movies
Of all the good books I’ve read recently, the best so far is probably Why Popcorn Costs So Much at the Movies and Other Pricing Puzzles
by Richard McKenzie. The EconTalk podcast on the subject is an enduring favorite, and I’ve probably listened to it 3 or 4 times since it originally aired last year.
The book looks at a large number of pricing puzzles and tries to provide rational explanations for why they might be the case. Largely, these focus on the degree to which different pricing structures arise in different situations. For example, why should manufacturer’s rebates or coupons exist? If everyone redeems the rebates or has the coupon, there’s no reason to bear the transaction cost of the extra hurdle, and so firms should just set the discounted price as the regular price. On the other hand, if no one uses coupons or rebates, there’s no reason to even offer the discount at all. So the only time when coupons or rebates could exist is when only a portion of consumers will take advantage of them – and then you get into the puzzle of why some consumers might want to take advantage of them and others would not. McKenzie takes great pains to illustrate the possible ways to resolve these puzzles.
There is also a strongly Hayekian component to the book. The presumption underlying most of his cases is that the people with the incentives to get prices right are more likely to have done so than the casual observer. The fact that a puzzle exists is taken as evidence that the person who is puzzled by the behavior doesn’t fully understand the situation. However, just because you aren’t puzzled by the situation doesn’t mean you fully understand it – the best thing about the book is how he makes the case that most simple answers to pricing puzzles actually disguise how complicated the puzzle is. He talks about how most people, when asked why there are occasional water shortages in California, will answer that this is because of the near-desert conditions that lead to droughts. While this seems to explain the phenomenon, he destroys this explanation by pointing out that while there isn’t much rain, there are literally no candy bars or automobiles falling from the sky and yet we never have shortages in these goods.
Overall, I recommend this book to anyone and everyone who is even a little interested in understanding economics as the science of making decisions. Most of his pricing puzzles go a long way to explaining many of the basic concepts in economics in a fun and fascinating way that is easy to connect to.
Rating: 10 of 10
4 Responses to “Review of Why Popcorn Costs So Much at the Movies”
Leave a Reply
You must be logged in to post a comment.