Why Popcorn Costs So Much at the Movies And Other Pricing Puzzles
Why Popcorn Costs So Much at the Movies, And Other Pricing Puzzles unravels the pricing mysteries we encounter every day. Have you ever wondered why all movies, whether blockbusters or duds, have the same ticket prices? Why sometimes there are free lunche
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R i chard B. McKenzi e
Why Popcorn Costs So Much at the Movies And Other Pricing Puzzles
Copernicus Books An Imprint of Springer Science + Business Media
Richard B. McKenzie The Paul Merage School of Business University of California Irvine, CA, 92697-3125 USA [email protected]
ISBN 978-0-387-76999-8 DOI 10.1007/978-0-387-77001-7
e-ISBN 978-0-387-77001-7
Library of Congress Control Number: 2008923102 © 2008 Springer Science+Business Media, LLC All rights reserved. This work may not be translated or copied in whole or in part without the written permission of the publisher (Springer Science+Business Media, LLC, 233 Spring Street, New York, NY 10013, USA), except for brief excerpts in connection with reviews or scholarly analysis. Use in connection with any form of information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed is forbidden. The use in this publication of trade names, trademarks, service marks, and similar terms, even if they are not identified as such, is not to be taken as an expression of opinion as to whether or not they are subject to proprietary rights. Typesetting and production: le-tex publishing services oHG, Leipzig, Germany Jacket design by James Sarfati Printed on acid-free paper 9 8 7 6 5 4 3 2 1 springer.com
Preface
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How Prices Matter
P
rices are ubiquitous, so much so that their importance to the smooth operation of a market economy (even one constrained by extensive polit ical controls as is the case in China) can go unnoticed and unheralded. Prices are what all trades, whether at the local mall or across the globe, are built around. They facilitate trades among buyers and sellers who don’t know each other, meaning they make less costly, or more socially beneficial, the allocation and redistribution of the planet’s scarce resources. Indeed, as the late Friedrich Hayek is renowned for having observed, prices summarize a vast amount of information on the relative scarcity and, hence, the relative cost of resources (with much of the information subjective in nature) that can be known only by individuals scattered across markets and cannot be collected in centralized locations, except through market-determined prices.1 Because they summarize, and largely hide from view of buyers, so much information spread among people throughout the world, prices can be puzzling. Why prices are what they are, and change for reasons that are obscured by a multitude of economic events that can extend backward in time and forward into the future, can be mysterious. Explaining many puzzling prices can be detective work that the modern-day Sherlock Holmes would surely find challenging. But the national economic planners of the past failed to appreciate the mystery of prices. Instead, they saw prices as nothing more than tags on goods and services—$1.99 or $599—that could be dictated or declared with the stroke of administrative pens. All they thought they had to do was write out a few numbers. Voil
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