Trick or Treat: Lessons in Economics

Halloween is an odd event because it is so silly: people dress up in scary costumes and, for one night in the year, anybody who knocks on the door is given candy. This post notes six lessons involving economics, not including the incentive/threat implied by the phrase “Trick or Treat”.

Halloween is economically significant. For candy manufacturers: it is the second biggest event (after Christmas). An average person spends about $30 on the candy being given out and that number does include the nearly equal amount spent on costumes and household decorations. Research shows that Reese’s Peanut Butter Cups is the favourite candy in the US, with local variations, and that the favourite costumes for children are Spiderman and a princess.  

Halloween shifts the demand curve for candy, which increases the amount of candy sold, but the predictability of the event and competition implies that the excess profits of candy makers would not change.

Yet, their pricing problem is complex: for the packages of small items sold to consumers, how big should a package be (40, 60, 75 or 100?) and what should the prices be? This application of second degree price discrimination allows a seller to profit by distinguishing different types of consumers based on how they respond to volume discounts. Personally, I am more interested in the day-after-Halloween discount, if I can get to the store before the other people trying to buy discount candy.

This year, applying the comparative statics principle leads to a bonus pricing lesson: shrinkflation due to, in particular, the increase in the price of raw cocoa. In late Dec. 2024/early Jan. 2025, the world price of cocoa beans peaked at about four times the 10-year average. This increase in the price of a significant input increases the cost of producing chocolate bars and is passed on to customers. In response, demand theory predicts that the people who hand out buy less less chocolate and more of a substitute candy.

A change in the types of candy available affects what happens after children return home. Children who collect lots of candy are “wealthy”. Wealth can be consumed immediately or saved (if the candy is not perishable). And, if a child’s tastes differs from the local average then they can trade for something more valuable, say, by swapping Reese’s Peanut Butter Cups for Sour Patch Kids or the reverse. Bargaining between siblings or friends is a low-stakes introduction to negotiating: since even a 7-year-old knows that they can refuse a bad deal, both sides learn about the importance of gains from trade.

The comparative statics principle reveals itself in other ways. For example, does the amount of candy collected by a child on cold rainy night differ from how much is collected on a warm night? That prediction may be too obvious.

A related hypothesis might be more interesting: what happens if the weather is good and the people giving out candy are running low? Some kind of rationing is needed at the door, because applying the price mechanism is unthinkable on Halloween. Other rationing mechanisms can be considered. First-come-first-served is obviously relevant. Or, each child may be given less. These facts should favour older children who can run between homes faster.

A supply response may exist on the margin. In the past, when it was difficult to go to the store and buy extra candy, a parent could bargain with their children to redistribute the candy which had been collected already. Now, unanticipated shortages can be overcome with an emergency call to DoorDash or UberEats. (Warning: Since a retailer’s stock is fixed for that night, delivery services increase supply only at the doors of parents who act first.)

Scary events can be eerily educational.