4 ms·

What I've never understood is the opposite, is those restaurants which have insane lines, as in 2+ hours waiting outside to get a seat, why they don't simply ra

What I've never understood is the opposite, is those restaurants which have insane lines, as in 2+ hours waiting outside to get a seat, why they don't simply raise their prices by $1 or $2. There was a restaurant that everyone in college in Vancouver went to back in 1993-1994, Antons Pasta, and you always had to wait incredibly long for - the place was packed 100% of the time at night. I would see this line (fresh from my economics class), and wonder, instead of charging $5 for the tortellini, and have a 3 hour line, why don't they charge $5.50, or heck, even $6.00, and only have a 1 hour line. It's not as though having a 1 hour line is going to result in any lost business. I'm thinking that part of this is the fact that a long line outside, means there will always be business inside, and there is always some paranoia in a restaurant of having empty seats inside, and better to have slightly missed profit opportunity, than to have some seats go empty and make a "reasonable" profit. That's the only theory I could come up with.

brenschluss 12y ago
Because lines are marketing/publicity/advertising. The longer the line, the more effective your publicity is, and the more long-term popularity you are stacking up. It's probably a short-term profit to have the restaurant charge more and to have shorter lines, at the expense of foregoing the free/best publicity possible long-term.
jiggy2011 12y ago
Because most restaurants only get busy on certain nights of the week, and even then only during certain seasons. So they'd need to start with the high prices and then have special offers or cheaper menus during lunch or midweek etc. Some restaurants do this , but it tends to be chain restaurants so it's seen as a bit declasse.
- ghshephard 12y ago
  Isn't it the case that restaurants have separate lunch and dinner menus for this very reason? I see further down that Antons is still in business, and still has a line - so perhaps we shouldn't second guess them - apparently they know what they are doing.
stanmancan 12y ago
For the record, Anton's still has over an hour wait to be seated nightly.
untog 12y ago
There's also the fact that not all restauranteurs are thirsty entrepreneurs. Honestly, if you were, you likely wouldn't get into the restaurant business as it's hardly a great market - most restaurants end up closed and in financial ruin. Many restaurant owners (and I know a couple) are quite happy to earn enough to live comfortably, and to be - for want of a better term - a cultural hotspot. I bet the owner of Anton's Pasta loves that his restaurant is that popular.
- ams6110 12y ago
  most restaurants end up closed and in financial ruin Isn't this also the case for most tech startups?
  - untog 12y ago
    Sure. I'd wager (anecdotally) that there are more big successes in the startup world, though. Even the most phenomenally successful restaurants don't go on to have IPOs unless they become massive national chains. And you can transfer your startup experience to a high paying job at Google, Facebook, etc. - being a failed restauranteur doesn't have the same marketability.
- lambdaphage 12y ago
  I don't understand how this constitutes an explanation: "Why don't restauranteurs maximize their profits? They're leaving money on the table," said Alice. "They don't maximize their profits because, if they did, they wouldn't be running a restaurant in the first place. The fact that so many of them end up destitute is proof of that," replied Bob. That seems to me more like a reaffirmation than an explanation. Doesn't it still seem mysterious when you put it that way? If the market for restaurants were far from competitive (due to say, a law sharply limiting the number of restaurants in a town) I could understand that sort of attitude. It seems to me, though, that even though there's a lot of product differentiation, there are still many restaurants per cuisine type in every major city and ultimately, a meal is a meal. We should be able to learn something by granting that the market is competitive. So that in the long run marginal revenue equals marginal cost, and firms that can't do that, exit. Given that, why are so many restaurants run as labors of love according to principles that would make a freshman econ major wince? And does that explain why so many restaurants that are run that way are run into the ground? Doesn't this state of affairs (which is pretty much public knowledge to anyone who's ever had a friend who worked in a restaurant) imply the existence of a large stack of $20 bills on the sidewalk for a profit-maximizing restaurant to swoop in and pick up? That question isn't rhetorical; I find restaurant economics genuinely confusing, to the point where I am willing to believe that the most parsimonious explanation involves legions of chef/owners irrationally blowing their credit ratings on a mid-life crisis. A mid-life crisis with waitstaff and sanitation permits.
ams6110 12y ago
I won't wait more than about 30 minutes in line at a restaurant for dinner, I don't care how good or cheap it is. For lunch if they don't have a table immediately available I move on. I don't understand how people have time to spend hours waiting for a meal.
rishabguha 12y ago
Gary Becker actually came up with a very elegant theory to explain this phenomenon: an individual consumer's desire to eat at a given restaurant is often driven by the observation that other consumers are eating at the same restaurant. Long lines give restaurants the social proof they need to maintain profit-maximizing levels of demand. The original paper: http://www.unc.edu/~fbaum/teaching/PLSC541_Fall06/Becker%20JPE%201991.pdf http://www.unc.edu/~fbaum/teaching/PLSC541_Fall06/Becker%20J...
cema 12y ago
Maybe they also cater to the clientele which has less money but more free time (students? elderly?)

brenschluss 12y ago

Because lines are marketing/publicity/advertising. The longer the line, the more effective your publicity is, and the more long-term popularity you are stacking up. It's probably a short-term profit to have the restaurant charge more and to have shorter lines, at the expense of foregoing the free/best publicity possible long-term.

jiggy2011 12y ago

Because most restaurants only get busy on certain nights of the week, and even then only during certain seasons. So they'd need to start with the high prices and then have special offers or cheaper menus during lunch or midweek etc. Some restaurants do this , but it tends to be chain restaurants so it's seen as a bit declasse.

ghshephard 12y ago
Isn't it the case that restaurants have separate lunch and dinner menus for this very reason? I see further down that Antons is still in business, and still has a line - so perhaps we shouldn't second guess them - apparently they know what they are doing.

stanmancan 12y ago

For the record, Anton's still has over an hour wait to be seated nightly.

untog 12y ago

There's also the fact that not all restauranteurs are thirsty entrepreneurs. Honestly, if you were, you likely wouldn't get into the restaurant business as it's hardly a great market - most restaurants end up closed and in financial ruin. Many restaurant owners (and I know a couple) are quite happy to earn enough to live comfortably, and to be - for want of a better term - a cultural hotspot. I bet the owner of Anton's Pasta loves that his restaurant is that popular.

ams6110 12y ago
most restaurants end up closed and in financial ruin Isn't this also the case for most tech startups?
- untog 12y ago
  Sure. I'd wager (anecdotally) that there are more big successes in the startup world, though. Even the most phenomenally successful restaurants don't go on to have IPOs unless they become massive national chains. And you can transfer your startup experience to a high paying job at Google, Facebook, etc. - being a failed restauranteur doesn't have the same marketability.
lambdaphage 12y ago
I don't understand how this constitutes an explanation: "Why don't restauranteurs maximize their profits? They're leaving money on the table," said Alice. "They don't maximize their profits because, if they did, they wouldn't be running a restaurant in the first place. The fact that so many of them end up destitute is proof of that," replied Bob. That seems to me more like a reaffirmation than an explanation. Doesn't it still seem mysterious when you put it that way? If the market for restaurants were far from competitive (due to say, a law sharply limiting the number of restaurants in a town) I could understand that sort of attitude. It seems to me, though, that even though there's a lot of product differentiation, there are still many restaurants per cuisine type in every major city and ultimately, a meal is a meal. We should be able to learn something by granting that the market is competitive. So that in the long run marginal revenue equals marginal cost, and firms that can't do that, exit. Given that, why are so many restaurants run as labors of love according to principles that would make a freshman econ major wince? And does that explain why so many restaurants that are run that way are run into the ground? Doesn't this state of affairs (which is pretty much public knowledge to anyone who's ever had a friend who worked in a restaurant) imply the existence of a large stack of $20 bills on the sidewalk for a profit-maximizing restaurant to swoop in and pick up? That question isn't rhetorical; I find restaurant economics genuinely confusing, to the point where I am willing to believe that the most parsimonious explanation involves legions of chef/owners irrationally blowing their credit ratings on a mid-life crisis. A mid-life crisis with waitstaff and sanitation permits.

ams6110 12y ago

I won't wait more than about 30 minutes in line at a restaurant for dinner, I don't care how good or cheap it is. For lunch if they don't have a table immediately available I move on. I don't understand how people have time to spend hours waiting for a meal.

rishabguha 12y ago

Gary Becker actually came up with a very elegant theory to explain this phenomenon: an individual consumer's desire to eat at a given restaurant is often driven by the observation that other consumers are eating at the same restaurant. Long lines give restaurants the social proof they need to maintain profit-maximizing levels of demand. The original paper: http://www.unc.edu/~fbaum/teaching/PLSC541_Fall06/Becker%20JPE%201991.pdf http://www.unc.edu/~fbaum/teaching/PLSC541_Fall06/Becker%20J...

cema 12y ago

Maybe they also cater to the clientele which has less money but more free time (students? elderly?)