That latte paid for your black coffee

You can eat out and get an excellent meal at a fair price – if you don’t order any beverage except tap water. Restaurants earn their highest profit margin on drinks and often supply good food as a bait to bring in customers who will drink while they eat. Sodas usually sell at a markup of about 15%, wine goes up “two and a half to three times” the wholesale price, and beer often sells at a price increase of 500%. Some consumers don’t mind paying such high premiums. Others do mind but do it anyway. Such buyers subsidize good meals for the “nondrinking gourmand.” The idea of “cross-subsidies” is apparent in movie theaters where the food is bad and pricey. You pay a high markup for the popcorn and snack food because the theater isn’t making much profit on the movie. If you don’t eat at the theater, the movie itself offers good economic value. You can also experience this kind of benefit at Starbucks, but only if you order black coffee. Fans who pay inflated prices for fancy, foamy coffee, sugar and milk mixtures subsidize the plain cup of coffee.

Original source: getAbstract of An Economist Gets Lunch Free Summary