Movie Snacks Causing Increased Cost in Health Care

Recently, movie theatre snacks suppliers have been urged to use products that are less damaging to ones health and limit the saturated and trans-fat present in oils used to cook the snacks. Although portion sizes are an issue, the current issue being addressed is the overall affect of the snacks on health. The main types of oil that can be used to cook popcorn are canola oil and coconut oil, which although it is high in saturated fat, contains no trans-fat and in the opinion of consumers, tastes better and thus increases the popcorn seller’s total sales, and subsequently their overall profit. In attempts to make butter-flavored toppings that contain less trans-fat, firms have found that they can create an unsaturated fat that is neither needed in the diet, nor beneficial to health. The possible affects of eating trans-fat is an increased risk of coronary heart disease.
Firms supplying another popular snack, nachos, have a different issue - the difficulty in creating a cheese sauce that contains a reduced amount of trans-fat. Their inability to create the reduced trans-fat cheese sauce is due to the need of oil to hold the cheese particles together. Firms will either have to continue the product as is, use real cheese, which will increase costs of storage and shipping as it needs to be refrigerated; or the firm can stop supplying the product. Firms could still make profits, even if their costs increased because of the use of cheese sauce that contains no trans-fat because according to last years costs in comparison to concession sales, $104.8 million and $696.7 million respectively, firms made astonishingly high profits, more than quadrupling their costs.
The movie theatre snack industry is a market failure because there are large spillover benefits towards firms (see figure 1), reflecting on their poor quality products that consumers are being overcharged for. This market failure results in the negative externality, a negative externality that results in costs on a third party other than the buyer and the firm, of increased costs in healthcare due to the large amount of risk of coronary heart disease in consumers purchasing the goods high in trans-fat and thus resulting in an increased demand for healthcare (see in figure 2). The cost of health care rises because of the increased demand for the good; this represents the productive inefficiency, the healthcare firms’ inability to supply enough healthcare to satisfy demand (figure 2), resulting from the market failure of theatre snacks. As seen in figure 1, the social cost exceeds the private cost of theatre snacks; therefore the optimum quantity is far smaller than the quantity at market equilibrium. The optimal price for theatre snacks is greater than equilibrium because the lower the consumption of theatre snacks, the lower the risk of coronary heart disease and thus lower costs of healthcare due to lower demand of healthcare (figure 3).
Evaluation
In order to remove the negative externality of an increased cost in healthcare, firms have to internalize their externalities; which essentially means that instead of society paying the costs of increased healthcare, the firms takes all the cost upon itself. Firms seek to maximize profit, and therefore will not willingly change their quantity of theater snacks produced to the optimum level unless they are forced to. In order to influence the firms to begin producing at optimum quantity, their incentives must be altered, most easily by placing laws on the amount of trans-fat they can produce. This then forces firms to come up with ways to limit the amount of trans-fat in there products. Another solution is to simply place a tax on trans-fats that equals the cost that has been externalized. The government can then subsidize healthcare firms to prevent productive inefficiency. These two solutions can be seen in figure 4.
Overall, this market failure must be dealt with in order to remove costs from consumers of healthcare; as healthcare can be considered necessity, it is vital that consumers have access to healthcare at affordable healthcare, therefore the government should take measures to internalize the firms costs as soon as possible to decrease peoples consumption of trans-fats and sat-fats as soon as possible.


Figure 1

Figure 2

Figure 3

Figure 4