It can be terribly difficult to get people to understand certain subtleties concerning business and economics. It can be impossible to get a politician on the stump to understand those same points. For when there are votes to be bought who cares about reason or logic? Which is why going to the movies, the cinema, has just got more expensive in one Indian state:
From August 1, Maharashtra’s cinemas have to let film-goers bring their own food
Everyone who has resented having to shell out a small fortune for an evening at the multiplex can finally expect relief — in Maharashtra, to start with. The Maharashtra Food and Civil Supplies Minister Ravindra Chavan on Friday announced that food items from outside will be allowed in multiplexes from August 1.
Well, OK, yes. Who hasn’t complained about the price of popcorn after all? Except this is to miss something very important, the food, drink and the movie, they’re a bundle, some parts subsidising others.
The minister’s statement came after a heated debate on the raging issue of the exorbitant rates charged by multiplexes for food, water and beverages which were higher than the printed maximum retail price (MRP).
Leader of Opposition in Legislative Council Dhananjay Munde raised the issue of differential pricing of the same product inside and outside multiplexes.
So, why are prices inside higher than out?
Share price of PVR, and Inox Leisure fell 5-13 percent on Friday as multiplexes in Maharashtra are soon to be allowed to allow people to carry their own food items inside halls.
The prices of cinema chains just fell, meaning that clearly investors believe this means less profit for them. Which is what the politicians are after, of course, they thinking that reduction will flow through to cinema goers pockets. Which isn’t how it’s likely to go. For that combination of food, drink and the ticket itself is a bundle. Normally there’s a set split between the makers of the movie and those who show it over the ticket revenue itself. But the theatre owners keep the revenue from food sales plus the associated profit. So, yes, it will be threatre owners who lose at first.
But now let this play out until it reaches the new equilibrium. Theatres are now less profitable, less investment will be made into theatres. Either they’ll become shabbier, won’t be updated, in which case ticket buyers get a worse experience – that’s the same as saying the price for a constant quality has risen. Or fewer theatres will be built in future, more extant ones will move to other uses. This itself raising the price of tickets, by restraining supply.
The point is not that no outside food should be allowed, nor that it should. Only that the current ban means that the market is in equilibrium. And removing the ban will mean movement to a new one. Currently, those who buy food subsidise the ticket prices. In the future they won’t, thus the prices are going to rise, aren’t they?