What do the new Harry Potter movie and fireworks displays have in common? Each has its ‘magical’ component—just ask Disney, which has made the fireworks over Cinderella’s castle a nightly sign-off event in the Magic Kingdom theme park. Harry Potter’s adventures take place in the literally magical world of witches, wizards, and Hogwart’s School.
The similarities don’t end there. Fireworks, as well as the Potter movie, are available to the public, at scheduled times, and both generate great anticipation in advance of public viewing opportunities. In the U.S., July 4th fireworks are the signature event of every summer season, and a fine reason for very young kids to stay up very late—outdoors in the dark, no less. As for Harry, scoring a ticket for a premier showing of the newest film at midnight is a benchmark achievement in itself. And both kinds of shows appeal to fans from every age group, worldwide.
Appeal and accessibility account for much of the popularity of these entertainments. Fireworks need no translation, and the Potter books have been set in ‘in every living language;’ sales topping 160 million books. Yet, objections to screening currently-running commercial films like Harry Potter in publicly-subsidized theaters like Raleigh’s IMAX at Exploris are entirely justified. On economic grounds, these commercial films should not qualify for taxpayer-subsidized presentation. They are not instances of what economists call ‘market failure;’ they are neither undersupplied, nor ‘public goods.’ When economists argue that taxpayer subsidies are needed to produce a good, it is either due to a presumed market failure, or because the good meets the definition of a public good.
To qualify as a public good, an item must first be non-competitive in consumption. My use or enjoyment, for example, cannot diminish the amount available for someone else. Competitive consumption is the opposite case. If I consume some of the good (literally, perhaps, as in an apple), there is measurably less available for another person to enjoy.
A second characteristic of true public goods is the non-exclusion principle. Once the display, service, or good is produced, it is nearly impossible to exclude anyone who wants to enjoy it from doing so. This is obviously the case with a fireworks exhibition—within some reasonable geographic limits. It also means that producers will be unsuccessful if they try to collect admission from viewers, and viewers will be unwilling to pay, based on the assumption that they can enjoy the show for free—become ‘free riders’— whether they pay or not.
A final characteristic of public goods concerns the cost of serving one additional customer. For a true public good, that cost is effectively zero. A hillside site may eventually get too congested to attract additional fireworks viewers, but one more person on the field adds virtually nothing to the price tag of the event.
If all three of these conditions are met, the product or service qualifies as a public good, which is where public policy and taxpayer dollars meet. Public goods receive subsidies, according to economic theory, because 1) all or most consumers can’t be made to pay, and 2) private producers won’t have an incentive to produce enough of the good if they charge a price equal to the marginal cost of zero. If we want these goods, or enough to satisfy demand, they must be provided by government—so the argument goes.
If fireworks shows are public goods, Harry Potter films are certainly not in that category. Theater seats are ‘competitive,’ and it is easy to exclude would-be patrons without tickets. Harry Potter films are clearly ‘private’ rather than ‘public’ goods. Private theaters have planned and do plan to screen Potter films on a schedule that will satisfy viewers. Given this, there is no evidence that theaters should be publicly subsidized, or need to be to enticed with taxpayer dollars to offer Harry Potter films. Meaning: public dollars for commercial films at IMAX are misspent public resources.
The magic of the market is that it doesn’t have to force consumers to pay for services they would purchase anyway. Consumers can find plenty of seats for Harry Potter in theaters in the private market.
Services that can’t make it in the free market? They vanish.