LAMB: Popcorn.
FRIEDMAN: Popcorn. Yes, there's a sort of a puzzle which I set up early in the book and then run bits and pieces of it through the book. And the puzzle is why popcorn is expensive in movie theaters. And as many things in economics, the problem is people start out thinking they know the answer. And the standard answer is, "Well, look, the movie theater has a monopoly, so therefore, they can charge as much as they want for the popcorn. They make money by charging a high price." And my reply to that is: well, they've got a monopoly once you get into the theater. But before you get into the theater, assuming you're a repeat customer, you know whether popcorn is expensive or cheap, and the more expensive the popcorn is in the theater, the less attractive the theater is, and therefore, the less willing you are to buy a ticket to that theater. They don't have a monopoly before you come in the door.
And that's sort of a very brief verbal explanation, but I go through a fairly careful argument which appears to show that if you allow for the effect of popcorn price not only on revenue from popcorn but on revenue from theater tickets, it would be in the interest of the theaters to sell popcorn at cost. And essentially, by doing that they, in effect, maximize the combined benefit to them and the customers, and then they transfer the benefit to themselves by appropriately adjusting ticket prices. And that then creates a puzzle: why don't they? And I then offer some explanations of that puzzle, two different possible explanations of what's going on.
.
...
...
<---- Hitzlsperger
....
...