Last week I stopped in for some dinner and drinks at Brazenhead Irish Pub in Grandview with a friend of mine. Even though it was not Burger Night ($3 burgers every Wednesday) we decided to stop in for some fish and chips and a few Smithwicks. It was 4:00 in the afternoon and the place was empty with the exception of staff and a few yuppies who were bellied up to the bar.
Conversation began about a recent internet article my friend had seen about a restaurant that let customers pay whatever they thought their food was worth. (http://www.timesonline.co.uk/tol/life_and_style/food_and_drink/eating_out/article5767771.ece). Looking through the menu my friend complained about the $9 hamburger and $4.75 drafts. “That’s absurd. Nobody is even here right now. What if I told the server that $4 is all I’m willing to pay for a hamburger…he can take it or leave it. Why would they not accept that offer? It would be a choice between making a profit or not, right?”
I acknowledged that he brought up an interesting point. Because there was currently no demand for a hamburger, the market equilibrium price should be very close to the actual cost. So then we began to think about this on a larger scale. What if you opened a restaurant that did not have set prices? Instead the price of an entrée would be determined by how crowded the restaurant was. This would be a fair reflection of demand and would ensure that the restaurant was crowded and making money all day long.
Well this was the spark that started a forest fire. In the ensuing 15 minutes my good friend started laying out the details of such a restaurant, “we could have a giant digital board in the front where prices are listed, but it can change like a stock ticker! Ya know!? Then for every 10 people who come in, prices will increase by 20%.”
Now I should probably note that this is the same friend who wanted to start a bar called Nattyville. The concept was a self-serve bar with one product, Natural Light. Each patron would pay a $3 cover and receive a plastic cup, good for unlimited refills on any one of the 20 strategically placed taps. My friend thought this was such a brilliant idea that he went so far as contacting the owners of the recently closed Nuthouse Bar on High Street and pitching the idea to them. Needless to say he didn’t get very far. Anyways the point is, very rarely do I take his ideas seriously.
Obviously opening such a restaurant would create a host of problems. But that was not the point. Looking back, it’s interesting to observe how different people value goods and the thought process that goes into purchasing a good. We were the consumers but were trying to analyze the cost through the eyes of the vendor. When a vendor prices a product they will do so according to the price they think the consumer will be willing to pay.
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i thought this post was really intriguing! i read the article that you posted the link to. It was talking about how the man who is running the restaurant with no set prices has done this once before, but it was in a time of economic boom, so people ended up paying more on average. But this time in an economic slump people are paying less. But i think that by changing it to this concept sort of makes it an inferior good. Going out to eat in general is a normal good, consumption goes up and down with income. But now when people are trying to cut down on spending due to less income they will probably be enticed by the idea of setting their own prices that consumption at this particular restaurant will probably go up. So even if they are making less per meal, they will probably sell more meals and may end up making more money than if they kept the menu prices. however once the economy picks back up they may want to revert to prices to avoid losing money when people have more to spend, becoming a normal good again.
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