"The Armchair Economist" By Steven Landsburg

In ‘The Armchair Economist’ Steven Landsburg applies a variety of basic economic principles and reasoning to human behavior. 

A chapter that particularly intrigued me was chapter 16, as Landsburg investigates into why popcorn costs so much at the cinema.  With my basic knowledge of economics, I assumed that if cinemas charged less for popcorn demand would increase.  However, I thought that the reason cinemas do not decrease the price of popcorn is because once you have entered the cinema; the cinema owner has a monopoly.   

In comparison, Landsburg illustrates that the owners’ monopoly is not the reason why popcorn prices are so high.  He states “Once you enter the theatre, the owner has a monopoly on a lot of things. He is the only supplier of rest rooms, for example. Why doesn't he charge you a monopoly price to use the rest room?[…] The answer, of course, is that a rest room fee would make the theater less attractive to moviegoers. To maintain his clientele, the owner would be forced to sell tickets at a lower price. What he collected at the rest room door would be lost at the box office”. 

Instead, Landsburg explains that popcorn is a secondary product, whereas the ticket is a primary product.  ‘Popcorn lovers’ are likely to be relatively price insensitive as they associate popcorn as being a necessity when visiting the cinema.  They are therefore likely to purchase popcorn regardless of the price.  Charging high prices for popcorn enables the cinema owner to keep his ticket prices below customers’ “reservation price”.  Allowing price sensitive customers to go to the cinema.  Contrary to my original opinion I have now realized that it is unlikely that cinema owners will reduce popcorn prices.

Overall, I really enjoyed reading ‘The Armchair Economist’ and would recommend it to anyone else interested in behavioral economics or anyone intrigued by the way economists see the world, as Landsburg covers many other interesting topics such as ‘Why do seatbelts cause accidents’ and ‘Why do they charge $35 for rock concerts when they know it could sell out at $50’.