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"His paper "A Note on Restaurant Pricing and Other Examples of Social Influence on Price" seeks to explain why popular restaurants with long waiting times for t

by ableal 12y ago

"His paper "A Note on Restaurant Pricing and Other Examples of Social Influence on Price" seeks to explain why popular restaurants with long waiting times for tables don't simply raise prices until the market clears. These kind of applications of economic research methods to the dilemmas of everyday life have become increasingly popular over the years in both academic work and popular journalism, and the spirit of such inquiries all goes back to Becker." That first phrase intrigued me, and I scanned the PDF linked ( http://www.unc.edu/~fbaum/teaching/PLSC541_Fall06/Becker%20JPE%201991.pdf http://www.unc.edu/~fbaum/teaching/PLSC541_Fall06/Becker%20J...). Possibly the key is this: "Formally, I propose that the demand for a good by a person depends positively on the aggregate quantity demanded of the good." (The figure that goes with this, on page 4, for the resulting price/demand curve, is worth a look.)

mseebach 12y ago
But, in that case, couldn't the increased price serve as social signaling? Why is a line out the door a better signal than a "Surge pricing: 2x" sign in the same door?
- DavidWoof 12y ago
  First, you don't get to choose your signalling. Anyone can double their prices and put a sign in the door, why would the public trust that? More importantly, if you raise prices to lower demand, the public will accurately see that as lowered demand. If you're nothing special at a doubled price, then you're nothing special. I'll admit though, I think Becker is mostly wrong here. One reason restaurants don't triple their prices to clear excess is fear that the public would call it "gouging" and react extremely negatively, thus eliminating any chance of long-term success. Also, there's a huge difference between a hot new restaurant and the restaurant that has lines out the door every day for years, a difference Becker ignores. I find a lot of "popular" Becker is like this, especially the famed work on discrimination. Brilliant math, genuine insights, but skips over essential variables when reaching his conclusions, making the final result dubious.
  - deleted 12y ago
    [deleted]
- sophacles 12y ago
  Some anecdotes about people regarding this: I paid for college by working at bars - security, bartending, cooking, eventually managing, etc. I came to the conclusion that long lines were a good thing. To the point that some friends and I seriously considered "portable lines" as a business.[1] The general rational I was able to determine was this: 1. Customers don't want to go to a boring place - this means they want to go where there are people. 2. Customers have a "fear of missing out" that can be exploited - the line must mean this is the place to be! 3. People don't translate high price to "popular place" - they translate "lots of people" to "popular place", higher prices translates to "over priced, not as good as they are charging" in the long run particularly. 4. A consistently popular place attracts people in a different way than an expensive place... people are bad at putting a price on time - so waiting a bit is "worth it" but paying a bit more isn't, at least multiple times - extra cost translates to special occasion, but extra line means "good time, just plan a for a bit of a wait". I've watched places try higher pricing, and worked at places that upped prices, and it seemed to not work so well, they generally went back to cheaper pricing and made up for it in volume -- even say $.25 price increases had a serious negative effect! All of this is in context of popular bar spots where the competition was literally next door. The place with the line always won that night, despite prices being the same, including amongst regulars or frequent customers choosing the place with the line, even if they preferred a different place. There were of course always those people who would choose the anti-line strategy, but profits and sales were low compared to the nights you could get an early line going. Final observation: there was one place that I'd see people driving or walking past waiting for there to be a line before they showed up. There was no talking them into "come in now before the line, because it will happen and you won't have to wait!". [1] The model would be this: hire "portable line inc" to popularize your evening's event. They get a bunch of people to stand in a line out front of your establishment - say 50 or so. Each of the people has to go through the line a couple of times, and in exchange they get a voucher for a free drink or two. The liners also hang out and socialize for say 10 minutes before the second time through the line. If you time it right (which is generally predictable), they will be a good draw and other folks will generally get worked in as well. (there are some algorithmic efficiencies to work out too), but they will provide the "this is happening!" atmosphere before actual customers get inolved in appropriate numbers to be a self-perpetuating line.

by ableal 12y ago

mseebach 12y ago

But, in that case, couldn't the increased price serve as social signaling? Why is a line out the door a better signal than a "Surge pricing: 2x" sign in the same door?

DavidWoof 12y ago
First, you don't get to choose your signalling. Anyone can double their prices and put a sign in the door, why would the public trust that? More importantly, if you raise prices to lower demand, the public will accurately see that as lowered demand. If you're nothing special at a doubled price, then you're nothing special. I'll admit though, I think Becker is mostly wrong here. One reason restaurants don't triple their prices to clear excess is fear that the public would call it "gouging" and react extremely negatively, thus eliminating any chance of long-term success. Also, there's a huge difference between a hot new restaurant and the restaurant that has lines out the door every day for years, a difference Becker ignores. I find a lot of "popular" Becker is like this, especially the famed work on discrimination. Brilliant math, genuine insights, but skips over essential variables when reaching his conclusions, making the final result dubious.
- deleted 12y ago
  [deleted]
sophacles 12y ago
Some anecdotes about people regarding this: I paid for college by working at bars - security, bartending, cooking, eventually managing, etc. I came to the conclusion that long lines were a good thing. To the point that some friends and I seriously considered "portable lines" as a business.[1] The general rational I was able to determine was this: 1. Customers don't want to go to a boring place - this means they want to go where there are people. 2. Customers have a "fear of missing out" that can be exploited - the line must mean this is the place to be! 3. People don't translate high price to "popular place" - they translate "lots of people" to "popular place", higher prices translates to "over priced, not as good as they are charging" in the long run particularly. 4. A consistently popular place attracts people in a different way than an expensive place... people are bad at putting a price on time - so waiting a bit is "worth it" but paying a bit more isn't, at least multiple times - extra cost translates to special occasion, but extra line means "good time, just plan a for a bit of a wait". I've watched places try higher pricing, and worked at places that upped prices, and it seemed to not work so well, they generally went back to cheaper pricing and made up for it in volume -- even say $.25 price increases had a serious negative effect! All of this is in context of popular bar spots where the competition was literally next door. The place with the line always won that night, despite prices being the same, including amongst regulars or frequent customers choosing the place with the line, even if they preferred a different place. There were of course always those people who would choose the anti-line strategy, but profits and sales were low compared to the nights you could get an early line going. Final observation: there was one place that I'd see people driving or walking past waiting for there to be a line before they showed up. There was no talking them into "come in now before the line, because it will happen and you won't have to wait!". [1] The model would be this: hire "portable line inc" to popularize your evening's event. They get a bunch of people to stand in a line out front of your establishment - say 50 or so. Each of the people has to go through the line a couple of times, and in exchange they get a voucher for a free drink or two. The liners also hang out and socialize for say 10 minutes before the second time through the line. If you time it right (which is generally predictable), they will be a good draw and other folks will generally get worked in as well. (there are some algorithmic efficiencies to work out too), but they will provide the "this is happening!" atmosphere before actual customers get inolved in appropriate numbers to be a self-perpetuating line.