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Yes, thus higher tippers subsidize lower tippers by reducing the list price of goods. If tipping didn’t exist and were instead embedded in wages, the employer

Yes, thus higher tippers subsidize lower tippers by reducing the list price of goods. If tipping didn’t exist and were instead embedded in wages, the employer would just raise the list prices commensurately. There’s a fair argument to be made that restaurant wages would decline in aggregate without tipping though. Certainly there would be both winners and losers

tptacek 4y ago
Which is generally what you want: for less price-sensitive customers to subsidize the more price-sensitive customers; see: any demand curve chart. Of course, raising prices is exactly what happens when you eliminate tipping. But prices are sticky; people react strongly to price increases. They can, to some extent, modulate their tipping behavior (from 25% down to 15%), but if all they can do is take or leave prices, some customers will switch restaurants.
- adam_arthur 4y ago
  Tipping is not about price sensitivity. On average, less price sensitive people will tip more, but there are no guarantees. Somebody who’s wealthy may still tip 20% over somebody who is less well off tipping 25% because they’re feeling charitable. Or, more commonly, some people don’t tip at all, even if they can afford it. Anybody who’s worked in food service has experienced this. You wont find anything close to a linear relationship between wealth and tipping percentage. Most will tip 20% ish regardless, because that’s what’s generally expected
  - sarchertech 4y ago
    Price sensitivity refers to how much the price of a good impacts someone’s willingness to buy it, not how wealthy they are. A wealthy customer can be very price sensitive.
- MichaelDickens 4y ago
  Tip size probably correlates with price insensitivity, but since it's completely voluntary, it also correlates with prosociality: prosocial people are paying to subsidize antisocial people.

tptacek 4y ago

Which is generally what you want: for less price-sensitive customers to subsidize the more price-sensitive customers; see: any demand curve chart. Of course, raising prices is exactly what happens when you eliminate tipping. But prices are sticky; people react strongly to price increases. They can, to some extent, modulate their tipping behavior (from 25% down to 15%), but if all they can do is take or leave prices, some customers will switch restaurants.

adam_arthur 4y ago
Tipping is not about price sensitivity. On average, less price sensitive people will tip more, but there are no guarantees. Somebody who’s wealthy may still tip 20% over somebody who is less well off tipping 25% because they’re feeling charitable. Or, more commonly, some people don’t tip at all, even if they can afford it. Anybody who’s worked in food service has experienced this. You wont find anything close to a linear relationship between wealth and tipping percentage. Most will tip 20% ish regardless, because that’s what’s generally expected
- sarchertech 4y ago
  Price sensitivity refers to how much the price of a good impacts someone’s willingness to buy it, not how wealthy they are. A wealthy customer can be very price sensitive.
MichaelDickens 4y ago
Tip size probably correlates with price insensitivity, but since it's completely voluntary, it also correlates with prosociality: prosocial people are paying to subsidize antisocial people.