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June 21, 2006
I'm a free rider
I like to go to the movies. The blue eyed girl and I don't agree on that many movies, so I don't see as many as I used to, but I happily shell out my $10 for my 2 hours of a movie in ice-box cold darkness.
But I, like many movie goers, hate the commercials and expensive food that make movie going less fun than I remember it being as a little kid. But it turns out that this is an absolutely critical part of the the movie theater business model. If we average the cost of showing the movie across all tickets we see that:
$3.62 of your movie ticket goes to the movie industry. (film rental and advertising costs)
$1.27 goes to theater rent (more in NY, that's probably most of the difference in ticket price)
$3.90 cover general and administrative expenses plus depreciation
Add that up and you see that it is far more than the $6.80 average national ticket price.
The revenue from in theater advertising and from marked up concessions is what keeps these theaters afloat. So in a sense, by closing my eyes for the advertisements s and buying my candy at the drug store, I free ride on those with different taste. But as long as I don't go to sold out shows, the opposite is also true. By increasing the base of ticket sales, I actually hold down the costs that must be assigned to the popcorn eaters, and so I allow lower ticket prices for them. They win and so do I.
This is much like my dad's argument about all those other countries that buy American drugs for less than we can buy them here. Yes we subsidize them. But by increasing the economies of scale and allowing some profit to tickle in, they actually hold down costs for American drug buyers and expand our medical choices.
Posted by OneEyedMan at June 21, 2006 3:38 PM
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