Introduction
Chapter 6 of McKenzie’s Why Popcorn Costs So Much at the Movies details the counterintuitive tendency of many manufacturers to distribute their products for free, even though these products can be extremely expensive to produce. The general question of the discussion is, “Why are some goods free?” Indeed, there is an often-repeated phrase that “There is no such thing as a free lunch,” but people may encounter thousands of free opportunities on the market. Cumulating certain services at a single price, special features of a product, and Internet piracy may explain why there are many free goods.
Bundled Pricing and Free Services in Hospitality Settings
By giving up some services for free, producers may increase the price of complementary services. In fact, producers charge one price for several services because, alternatively, it would be inconvenient to collect all the fees separately (McKenzie, 2008). For example, customers can use the Internet, the toilet, and drink water in many restaurants and cafes for free. In principle, one can even go to such a place and use the Internet without paying anything, because the cafe staff cannot kick a person out of the place. However, in most cases, consumers buy at least a cup of coffee, which compensates for all the extras.
The only barrier that property owners need to consider is space constraints. There must be some way to limit long stays with laptops and one cup of coffee. This can be achieved by introducing a shared table with multiple locations.
Economic Rationale for Free Distribution of Specific Goods
Experience goods, network goods, and addictive goods have specific features explaining why such goods may be delivered for free. Economists use these terms to specify several industries where free services may be beneficial (McKenzie, 2008). Experience goods are those goods and services whose value is easier to grasp by using them.
It is common practice for some Internet platforms (Netflix, Apple Music) to allow limited free-of-charge use. By allowing consumers to understand the value of a service, producers have more chances to sell it. Network goods are mostly related to highly popular services and goods that one cannot ignore in everyday life.
The most obvious example is operating systems for PCs. Microsoft’s monopoly in the market was achieved by initially offering free access to its operating systems in the 1990s. When the economy of scale is achieved, Microsoft may charge above-competitive prices for its systems. Lastly, addictive goods make people psychologically or physically addicted to using them in the future. The government is cracking down on such goods by imposing high taxes and regulations on alcohol and cigarette manufacturers and banning the drug trade.
The Role of Internet Piracy in Expanding Product Reach
In the 21st century, Internet piracy plays a crucial role in the distribution of free goods. Surprisingly, within certain limits, piracy can also be useful to sellers (McKenzie, 2008). Pirates can trigger a network effect as more people start using the service. The popularity of a product can show paying customers that the product is popular, so it makes sense to purchase the legal version. The history of many of today’s large digital companies is connected with the growth of piracy of their services, which is uncontrollable by them.
Conclusion
To conclude, this essay elaborated on the important economic question of why some goods are free. In general, it is explained by the fact that producers may have some benefits from giving up their services for free. The increase in a company’s popularity, the special addictive characteristics of a good, and the indispensable nature of services are good explanations of such phenomena. Internet piracy is a complicated issue because it may increase revenues for big firms but highly diminishes item sales for writers and filmmakers.
Reference
McKenzie, R. D. (2008). Why Popcorn Costs So Much at the Movies. Springer New York.