Pricey popcorn

The economist Steven Landsburg is one of the smartest guys around.  I visit his blog all the time and have enjoyed several of this books.  More Sex is Safer Sex is typical of his approach.  Economic thinking a la Landsburg can be used to reach counter-intuitive conclusions.  Landsburg deploys his ET in this way and (I suppose) finds that the method keeps students awake and readers reading.

The revised version of The Armchair Economist provides more examples of the Landsburg approach.  But the trouble is that his own method can get him into trouble.  He includes a chapter on the oldie "Why popcorn costs more at the movies and why the obvious answer is wrong."  He tries on a price discrimination explanation: the serious cinephiles like the movies-and-popcorn experience and they can be made to pay a differential price via expensive popcorn.  Finding a way to extract higher prices from those with higher reservation prices is the name of the game.

But the author lets this explanation go because no movie theatre is a monopoly; any price discrimination profits made would be competed away.  In Landsburg's brief discussion of price discrimination, he mentions "monopoly" twelve times.  But this is where standard vanilla-flavored textbook econ misleads.  We do not live in a world where there are "perfect" competitors and "monopolists" -- and occasional "oligopolists" if you like game theory.  Rather, there are  varying degrees of pricing power everywhere.  In a world of "imperfect" competition and limited comparison shopping (and only 24 hours in each day), buyers are obliged to fork over some of their consumer surplus.  It happens all the time. 

Landsburg ends the chapter with his popcorn riddle left hanging in the air.  (He recounts all this as part of a discussion he has with a seatmate on an airplane.) I am certain that he gets my point, but he leaves the discussion where it is because he is seemingly attached to the standard model (where price discrimination is only practiced by "monopolists").  That's my point.