I sat thinking about this problem for a while since it can often be unpalatable for restaurants to charge a high fee just for a reservation. There is a large subset of the population that will never pay this fee and find it totally distasteful, especially for restaurants that aren’t status goods like Carbone.
The best scheme I can think of is a reservation fee that goes down over time. It might start at $100 per person to book a table 2 months out, going down to $0 or $5 to book a table a day out. This isn’t perfect, as bots can still capture some surplus, especially closer to the date, but allows the restaurant to capture some surplus. It also doesn’t account for the actual value of a reservation at a hot time: a 7pm reservation for this Friday is more valuable than one in two months but is priced cheaper. However, it gives more of an appearance of fairness for patrons while capturing more surplus for restaurant owners.
Taking the practical/Economics view still shuts out the average income person, who theoretically has an equal chance of getting tickets or a restaurant reservation on their computers. Increasing TS tickets to the real market price means zero of those fans who would never pay significantly above the current rate will ever get a ticket. I presume they will be happy that the extra profit went to charity, but they remain shut out.
For restaurant reservations, let them be egalitarian and non-transferable. Better for restaurant owners to benefit than some kid from Brown, but we don’t need to extract value from everything extractable. That is a weird and unnecessary value to promote.
I've owned three restaurants, the longest-surviving closing in 2022 after 15 years. I'm a lefty capitalist who believes in free-market competition and that prices should reflect the real cost of delivering the product. Restaurants essentially mislead customers by posting prices that are less than what the customer will ultimately pay – because of tipping and, more recently, service and administrative fees. Everything should be included in the price of the product like it is in most other industries. Why not? Where it isn't, like concert venues or airlines, we get outraged!
That leads to me believing that restaurants should be more expensive, there should be fewer of them, and people should go out to eat less. Dining out should be a special occasion for most people. Not just birthdays and Mother's Day, but maybe twice a week instead of four times, or three times a month instead of ten.
Logically, I should embrace your idea of charging not only for the food and service but also for the table. Maybe if we combined your scenario and mine people could eat out as often as they do now by adjusting the days and times they do so.
But I like the fact that currently most people can go to that special dinner if they plan enough. People of average means might have to save up for it, research the reservation policy of their desired destination, and log in at exactly the right moment, but dining at a popular place at 8:00 pm on a Sunday night is possible. If reservations start going for whatever the market will bear, most people will never be able to save enough for the privilege. Dining will become more segregated than it already is. Those dining in the first and last seatings will be labeled as commoners and those dining between 7:00 and 9:00 will be perceived as the elite. Expensive restaurants are already exclusionary; I hate to see them getting more so.
Also, there is no doubt that restaurant workers won't be sharing in the new profits, regardless of who is getting them.
That said, I know I am on the losing side of this battle. Money always wins. There's no way to stop the secondary market from rent-seeking, so the primary market will no doubt see that they are missing out on revenue and they will start selling reservations at market price themselves. The disparity between the haves and have-nots will get worse. It makes me sad that this is where we are. I'm glad I got out of the restaurant business when I did.
In other industries, it is perfectly normal to expect providers to adjust their prices to market clearing levels. Airlines and hotels are great examples of this - if hotel rooms didn't cost more during peak season, or during a major event, you would have shortages.
If you closely, you can find similar demand/price adjustments in numerous other industries. Movie theaters offer cheaper tickets for weekday afternoon shows. MLB now chargers different prices for each game, depending on the time of day and the opponent (it used to be a fixed price for every home game a team plays, throughout the entire regular season). Taxis used to have peak-demand-period shortages, Uber surge pricing eliminated those shortages. Even restaurants often have separate lunch and dinner menus, with the lunch menu charging lower prices for the same food...precisely because demand is lower during lunch, and table space is at less of a premium.
There's never a wait for a table at my local Applebee's! Maybe that's a bad example.... However economic substitutes really do serve a role to play once your economy becomes large and complex enough to support niches. Instead of the fancy, expensive seafood restaurant with valet parking, I can get equally delicious seafood at the hole in the wall a few blocks down the road. The experience is different, but people learn to appreciate different experiences.
This is pretty clear with live music, too! Perhaps nothing can truly compare to a Taylor Swift concert at a sold-out football stadium, but a small gig for a local band can be a cheaper and easier alternative while fulfilling similar entertainment, music, and community needs.
This is also why rigid zoning laws suck so much. The most extravagant forms of housing will be the most expensive in the market, but there is such a wide variety of housing possibilities that could fit a wide variety of needs and tastes at an affordable price, if only we would permit their construction instead of forcibly limiting the options.
I liked the idea for restaurant reservations, but he lost me with the ticket pricing.
I am a fan of Matt and am slow to throw this in his face, but it's simply true that he comes from a famous family, grew up attending elite institutions, and has always led a life surrounded by considerable wealth. And good for him! I don't begrudge him his charmed existence or well-deserved success, but that background often shades his perspective in a way that annoys me.
What would the concert experience be like without the broke twentysomething super fans? His pointing to the median household incomes excludes a broad swath of the population. Charging market prices would simply lead to the crowds being more homogeneous, older, more subdued -- frankly, more lukewarm towards the music. Non-market rates, as most artists understand, add a lottery element into the mix, resulting in a better (and fairer) experience. Ticket tracking to prevent scalping is a perfectly reasonable way to preserve that.
The Buenos Aires example is a bit of a joke. Basically, Matt is saying that if a policy isn't perfect, then it's worthless. In fact, the below-market prices ensure that the concert experience is more egalitarian than it otherwise would be. (If it didn't, no artist would bother.)
Markets are a great tool for allocating resources, but it's simply not true that charging astronomically high prices is always the best or fairest strategy for dealing with scarcity. There are plenty of situations where long waits (or distributing goods randomly) is the preferable solution.
I've been thinking about this quite a bit. I think that I tend to feel differently about how pricing is set in three major buckets (1) Things we need for basic survival needs (2) Thinks we want and that are widely agreed to be important for happiness and social cohesion (3) Things that are true lux.
I think of #1 as including things like basic housing, health care, access to healthy food, and all of the above plus education for your kids. I think that these can be priced at a market rate but only if everyone has real legitimate access to what they need. Basically, a penthouse apartment or McMansion seems like #3 to me and I don't really care what they cost. There is also probably a level of housing that has more space per person or nicer finishes than are really necessary that I would put into level #2 and I would want us to try to keep that within the range of access of at least 80% of people by either helping to boost supply or providing subsidies.
I would include experiencing sports, music, and art as somewhere in the 1.5 range. I think everyone should have some access and most of us should be able to have very regular access. Taylor Swift of Bruce Springsteen ticket prices don't really concern me as long as we are still making sure that someone can go and see good live music. That could be done by providing grants to local artists that allow them to charge lower prices or paying for public concerts at free community festivals. I think that there should be VERY affordable opportunities to play sports and make and see art and we should subsidize those if needed. I don't really care how much an pro-sports ticket for the NHL or NFL is if there are also minor league teams what the average person can afford to see on a regular basis.
I haven't really thought about restaurants in these terms before. I think fancy restaurants are #3 in my book. But it does feel like getting to eat together in public and experience good food and interesting flavors should be something that we can all engage in to some extent.
Wimbledon has the best ticketing system I'm aware of.
There have 3 types of show-court tickets:
1. Debenture tickets - Absurdly expensive-- like tens of thousands GBP. There's not so many of them, but their proceeds cover the *entire cost* of running the tournment.
2. Lottery tickets - Most of the seats. People enter a lottery for a particular day and # of tickets. If you're lucky you get to buy them for a very reasonable price ~75-200 GBP
3. Queue tickets - Very good, lower level and courtside seats. And they only cost ~10-20 GBP. To get them, you just... wait in line the day before. There's a whole process and culture to this. People may queue anywhere from 12-30 hrs. Everyone camps out, there are food trucks and people playing games and stuff. It's quite fun.
Obviously this wouldn't be a solution for restaurants, but it does a good job preventing scalpers, capturing revenue, and not dropping the ball on the PR front.
It seems that a lot of folks are assuming a false dichotomy between "charge for all tables / tickets at something closer to the (higher) market clearing price" or "charge the lower price that sells quicker to die-hards and scalpers and let the secondary markets figure it out". A restaurant and a concert could do both or more! For instance. some concerts reserve certain prime seats for members of the fan club to purchase at a reasonable price (with limited (if any) ability to resell the prime tickets), whereas seats throughout other parts of the venue could be charged at something closer to the market clearing price. If anything, this can provide a way for the rich clout-chaser to cross-subsidize the die-hard fan.
If I was Taylor Swift and had dictatorial control over how my tickets were sold, I would do the following:
-About 10% of tickets would be sold for a very low price to people who have engaged in significant demonstrations of fandom (e.g. attending multiple prior concerts, membership in a fan club). The right to purchase these would be allocated by lottery, and these tickets would not be transferable.
-About 45% of the tickets would be sold via a Dutch auction and would not be transferable.
-About 45% of the tickets would be sold via a Dutch auction and would be transferable.
I haven't seen anyone in the comments mention that NFTs seem like a potential tool here. It seems like a big reason to not raise the price of reservations (or Taylor Swift tickets) is to avoid having an only rich people audience. Some type of lottery system seems reasonable, although there is no reason that a lottery system needs to operate on a timeline that requires people to log in and fill out the form in seconds. That system incentivizes bots.
But back to the NFT point. Sell the tickets, or book the reservation as an NFT with code that funnels all reselling profits to the original entity. It allows you to resell your item when necessary, removes any incentive to acquire just for resale, and allows the original entity to capture additional value. If you are interested in turning a profit you can meet up with someone for extra cash given at the time of the transaction.
Doesn't really matter if it's on the blockchain or kept on a company's database. It just has to require any transaction to occur within that ecosystem with any proceeds above the list price going to the issuing entity.
I don't think that is true at all. Charging for reservations is a choice that restaurants may not want to make, but third parties choose to make it on their behalf.
The NFT is the ticket, not a separate item. It is definitely less of a solution for reservations than tickets, but it allows the original entity to set the price and takes away the incentives for purchasing the item to generate profits by a third party.
The point of the NFT is to remove the ability to profit on the resale. If I can no longer profit from selling my reservation, what is the point of selling it. If I reserve a table at a restaurant and no longer plan to attend, if my reservation is an NFT with code that sends 100% of any profits to the restaurant, why bother selling it other than to get back my money?
It will allow the original entity to actually set the price that they intend. And if for some reason someone agrees to buy it for more than they paid, the original entity captures that money.
I know this is supposed to be getting reservations at trendy restaurants and Taylor Swift (I’ll get to that) but the corporate greed thing deserves a word.
The thing is that corporate “greed” is generally a two step process. Just because it’s a second order effect doesn’t mean that the layperson’s intuition that they are taking more money out of our wallets than they deserve isn’t right.
First, merge with and/or buy all of your competitors—then—raise prices freely in response to market pressures without worrying about substitution effects.
Believe or not, economic models don’t say that the producer automatically gets to pass along 100% (or 110% just to cover any future inflation…) of rising costs. Depending on the elasticity curve they might have to suck it up. There’s absolutely no law that says that profits have to stay constant. In fact, gaining market share often meant that you sacrificed profit for a bigger chunk of business—but if you already own most of the eggs in say, New England, then who cares?
I literally just read a story about egg prices. The fact that Cal-Maine foods own 20% of the market and exercises “seat discipline” means that there is little slack for when things like bird flu happens.
And that whole thing about refineries happening to close down for maintenance is *exactly* what happens in California. Yes, regulations make it tough to build new refineries here, but that gives them perfect cover to maybe take a day extra or use their B-team. Who cares when it’s offline and you lose some sales, the one you do make triple your profit.
That software that 80% of the corporate landlords use to price their rental units often recommends crazy high prices or just withholding units from the market until perhaps “the busy season” or what have you. (What cartel? Plausible disability. The algorithm just spits out a price based on “market rates”.)The net effect is that you push vacancies up by a percent or two, which in an already tight market like NYC or SF can mean huge rent increases.
Corporations are not inherently “greedier”than your mom and pop, but they have size, money and power to enforce “discipline” and tacit collusion.
US capitalism used to be synonymous with abundance. The problem is that there’s a whole lot more money to be made if there’s some scarcity. That has become shocking clear after the pandemic.
As regards Taylor Swift, the Ticketmaster/Live Nation monopoly also is also the biggest SECONDARY market for tickets. They do a pretty good job in cleaning up much of the surplus they / the performers leave on the table the first time around. They are the scalpers!
As for restaurant reservations: putting aside the very trendiest places, we see of course see scarcity at work—qualified labor is tough to come by and retail rents are much higher than they used to be. (despite all the vacancies—curious why supply always works to raise and never lower prices these days? There’s something going on in aggregate—the forest—looking at a tree tells you almost nothing.)
I suspect that a lot of restaurants have also figured out that people willing to wait 30 minutes for a table are not those that value their time I.e. not likely to be the big spenders. So *more* seats are available via reservation, which means that the stand by line gets worse, making reservations *even more* attractive.
A small shortage of primary care doctors after Covid means concierge medicine looks attractive, more doctors go into concierge medicine, the experience for everyone else left in the general pool becomes worst, pretty soon you are paying an intermediary to get you into one of those concierge places.
These doom loops are terrible but generate lots of profit. It will get worse for the rest of us unless we address the primary scarcities: not enough doctors graduating from medical school, and the physician groups owned by dominant hospitals and private equity taking the surplus that could be reinvested into hiring more doctors and allowing them to work fewer hours so that they don’t get burnt out and decide to go into concierge medicine like my sister-in-law.
My UCLA group doctor pretty much yelled at me for suggesting that wait times had increased quoting doctor shortages, while at the same time UCLA concierge medicine advertises greater convenience for working professionals. Make it (or allow) things to get worse and then profit from it is the 21st Century American way.
I sat thinking about this problem for a while since it can often be unpalatable for restaurants to charge a high fee just for a reservation. There is a large subset of the population that will never pay this fee and find it totally distasteful, especially for restaurants that aren’t status goods like Carbone.
The best scheme I can think of is a reservation fee that goes down over time. It might start at $100 per person to book a table 2 months out, going down to $0 or $5 to book a table a day out. This isn’t perfect, as bots can still capture some surplus, especially closer to the date, but allows the restaurant to capture some surplus. It also doesn’t account for the actual value of a reservation at a hot time: a 7pm reservation for this Friday is more valuable than one in two months but is priced cheaper. However, it gives more of an appearance of fairness for patrons while capturing more surplus for restaurant owners.
Taking the practical/Economics view still shuts out the average income person, who theoretically has an equal chance of getting tickets or a restaurant reservation on their computers. Increasing TS tickets to the real market price means zero of those fans who would never pay significantly above the current rate will ever get a ticket. I presume they will be happy that the extra profit went to charity, but they remain shut out.
For restaurant reservations, let them be egalitarian and non-transferable. Better for restaurant owners to benefit than some kid from Brown, but we don’t need to extract value from everything extractable. That is a weird and unnecessary value to promote.
Why not just charge more for the food?
Hi Matt,
I've owned three restaurants, the longest-surviving closing in 2022 after 15 years. I'm a lefty capitalist who believes in free-market competition and that prices should reflect the real cost of delivering the product. Restaurants essentially mislead customers by posting prices that are less than what the customer will ultimately pay – because of tipping and, more recently, service and administrative fees. Everything should be included in the price of the product like it is in most other industries. Why not? Where it isn't, like concert venues or airlines, we get outraged!
That leads to me believing that restaurants should be more expensive, there should be fewer of them, and people should go out to eat less. Dining out should be a special occasion for most people. Not just birthdays and Mother's Day, but maybe twice a week instead of four times, or three times a month instead of ten.
Logically, I should embrace your idea of charging not only for the food and service but also for the table. Maybe if we combined your scenario and mine people could eat out as often as they do now by adjusting the days and times they do so.
But I like the fact that currently most people can go to that special dinner if they plan enough. People of average means might have to save up for it, research the reservation policy of their desired destination, and log in at exactly the right moment, but dining at a popular place at 8:00 pm on a Sunday night is possible. If reservations start going for whatever the market will bear, most people will never be able to save enough for the privilege. Dining will become more segregated than it already is. Those dining in the first and last seatings will be labeled as commoners and those dining between 7:00 and 9:00 will be perceived as the elite. Expensive restaurants are already exclusionary; I hate to see them getting more so.
Also, there is no doubt that restaurant workers won't be sharing in the new profits, regardless of who is getting them.
That said, I know I am on the losing side of this battle. Money always wins. There's no way to stop the secondary market from rent-seeking, so the primary market will no doubt see that they are missing out on revenue and they will start selling reservations at market price themselves. The disparity between the haves and have-nots will get worse. It makes me sad that this is where we are. I'm glad I got out of the restaurant business when I did.
Contrary to all logic, the word “restaurateur” does not contain an “n”.
This may sound hopelessly Sixties, but one option for a musician who charges more for tickets would be the occasional free concert.
In other industries, it is perfectly normal to expect providers to adjust their prices to market clearing levels. Airlines and hotels are great examples of this - if hotel rooms didn't cost more during peak season, or during a major event, you would have shortages.
If you closely, you can find similar demand/price adjustments in numerous other industries. Movie theaters offer cheaper tickets for weekday afternoon shows. MLB now chargers different prices for each game, depending on the time of day and the opponent (it used to be a fixed price for every home game a team plays, throughout the entire regular season). Taxis used to have peak-demand-period shortages, Uber surge pricing eliminated those shortages. Even restaurants often have separate lunch and dinner menus, with the lunch menu charging lower prices for the same food...precisely because demand is lower during lunch, and table space is at less of a premium.
There's never a wait for a table at my local Applebee's! Maybe that's a bad example.... However economic substitutes really do serve a role to play once your economy becomes large and complex enough to support niches. Instead of the fancy, expensive seafood restaurant with valet parking, I can get equally delicious seafood at the hole in the wall a few blocks down the road. The experience is different, but people learn to appreciate different experiences.
This is pretty clear with live music, too! Perhaps nothing can truly compare to a Taylor Swift concert at a sold-out football stadium, but a small gig for a local band can be a cheaper and easier alternative while fulfilling similar entertainment, music, and community needs.
This is also why rigid zoning laws suck so much. The most extravagant forms of housing will be the most expensive in the market, but there is such a wide variety of housing possibilities that could fit a wide variety of needs and tastes at an affordable price, if only we would permit their construction instead of forcibly limiting the options.
Spicy
I liked the idea for restaurant reservations, but he lost me with the ticket pricing.
I am a fan of Matt and am slow to throw this in his face, but it's simply true that he comes from a famous family, grew up attending elite institutions, and has always led a life surrounded by considerable wealth. And good for him! I don't begrudge him his charmed existence or well-deserved success, but that background often shades his perspective in a way that annoys me.
What would the concert experience be like without the broke twentysomething super fans? His pointing to the median household incomes excludes a broad swath of the population. Charging market prices would simply lead to the crowds being more homogeneous, older, more subdued -- frankly, more lukewarm towards the music. Non-market rates, as most artists understand, add a lottery element into the mix, resulting in a better (and fairer) experience. Ticket tracking to prevent scalping is a perfectly reasonable way to preserve that.
The Buenos Aires example is a bit of a joke. Basically, Matt is saying that if a policy isn't perfect, then it's worthless. In fact, the below-market prices ensure that the concert experience is more egalitarian than it otherwise would be. (If it didn't, no artist would bother.)
Markets are a great tool for allocating resources, but it's simply not true that charging astronomically high prices is always the best or fairest strategy for dealing with scarcity. There are plenty of situations where long waits (or distributing goods randomly) is the preferable solution.
I suppose Novo Nordisk should also charge more for Wegovy, since shortages have persisted for nearly a year.
I've been thinking about this quite a bit. I think that I tend to feel differently about how pricing is set in three major buckets (1) Things we need for basic survival needs (2) Thinks we want and that are widely agreed to be important for happiness and social cohesion (3) Things that are true lux.
I think of #1 as including things like basic housing, health care, access to healthy food, and all of the above plus education for your kids. I think that these can be priced at a market rate but only if everyone has real legitimate access to what they need. Basically, a penthouse apartment or McMansion seems like #3 to me and I don't really care what they cost. There is also probably a level of housing that has more space per person or nicer finishes than are really necessary that I would put into level #2 and I would want us to try to keep that within the range of access of at least 80% of people by either helping to boost supply or providing subsidies.
I would include experiencing sports, music, and art as somewhere in the 1.5 range. I think everyone should have some access and most of us should be able to have very regular access. Taylor Swift of Bruce Springsteen ticket prices don't really concern me as long as we are still making sure that someone can go and see good live music. That could be done by providing grants to local artists that allow them to charge lower prices or paying for public concerts at free community festivals. I think that there should be VERY affordable opportunities to play sports and make and see art and we should subsidize those if needed. I don't really care how much an pro-sports ticket for the NHL or NFL is if there are also minor league teams what the average person can afford to see on a regular basis.
I haven't really thought about restaurants in these terms before. I think fancy restaurants are #3 in my book. But it does feel like getting to eat together in public and experience good food and interesting flavors should be something that we can all engage in to some extent.
Wimbledon has the best ticketing system I'm aware of.
There have 3 types of show-court tickets:
1. Debenture tickets - Absurdly expensive-- like tens of thousands GBP. There's not so many of them, but their proceeds cover the *entire cost* of running the tournment.
2. Lottery tickets - Most of the seats. People enter a lottery for a particular day and # of tickets. If you're lucky you get to buy them for a very reasonable price ~75-200 GBP
3. Queue tickets - Very good, lower level and courtside seats. And they only cost ~10-20 GBP. To get them, you just... wait in line the day before. There's a whole process and culture to this. People may queue anywhere from 12-30 hrs. Everyone camps out, there are food trucks and people playing games and stuff. It's quite fun.
Obviously this wouldn't be a solution for restaurants, but it does a good job preventing scalpers, capturing revenue, and not dropping the ball on the PR front.
British people are famously good at queuing though . . . .
It seems that a lot of folks are assuming a false dichotomy between "charge for all tables / tickets at something closer to the (higher) market clearing price" or "charge the lower price that sells quicker to die-hards and scalpers and let the secondary markets figure it out". A restaurant and a concert could do both or more! For instance. some concerts reserve certain prime seats for members of the fan club to purchase at a reasonable price (with limited (if any) ability to resell the prime tickets), whereas seats throughout other parts of the venue could be charged at something closer to the market clearing price. If anything, this can provide a way for the rich clout-chaser to cross-subsidize the die-hard fan.
If I was Taylor Swift and had dictatorial control over how my tickets were sold, I would do the following:
-About 10% of tickets would be sold for a very low price to people who have engaged in significant demonstrations of fandom (e.g. attending multiple prior concerts, membership in a fan club). The right to purchase these would be allocated by lottery, and these tickets would not be transferable.
-About 45% of the tickets would be sold via a Dutch auction and would not be transferable.
-About 45% of the tickets would be sold via a Dutch auction and would be transferable.
I haven't seen anyone in the comments mention that NFTs seem like a potential tool here. It seems like a big reason to not raise the price of reservations (or Taylor Swift tickets) is to avoid having an only rich people audience. Some type of lottery system seems reasonable, although there is no reason that a lottery system needs to operate on a timeline that requires people to log in and fill out the form in seconds. That system incentivizes bots.
But back to the NFT point. Sell the tickets, or book the reservation as an NFT with code that funnels all reselling profits to the original entity. It allows you to resell your item when necessary, removes any incentive to acquire just for resale, and allows the original entity to capture additional value. If you are interested in turning a profit you can meet up with someone for extra cash given at the time of the transaction.
I don't see any negatives to this approach.
Getting blockchain involved seems to add a lot of complexity and failure points while not prevent reselling.
Doesn't really matter if it's on the blockchain or kept on a company's database. It just has to require any transaction to occur within that ecosystem with any proceeds above the list price going to the issuing entity.
I don't think that is true at all. Charging for reservations is a choice that restaurants may not want to make, but third parties choose to make it on their behalf.
The NFT is the ticket, not a separate item. It is definitely less of a solution for reservations than tickets, but it allows the original entity to set the price and takes away the incentives for purchasing the item to generate profits by a third party.
How so? Does Ticketmaster take 100% of the profits from reselling your ticket?
The point of the NFT is to remove the ability to profit on the resale. If I can no longer profit from selling my reservation, what is the point of selling it. If I reserve a table at a restaurant and no longer plan to attend, if my reservation is an NFT with code that sends 100% of any profits to the restaurant, why bother selling it other than to get back my money?
It will allow the original entity to actually set the price that they intend. And if for some reason someone agrees to buy it for more than they paid, the original entity captures that money.
I know this is supposed to be getting reservations at trendy restaurants and Taylor Swift (I’ll get to that) but the corporate greed thing deserves a word.
The thing is that corporate “greed” is generally a two step process. Just because it’s a second order effect doesn’t mean that the layperson’s intuition that they are taking more money out of our wallets than they deserve isn’t right.
First, merge with and/or buy all of your competitors—then—raise prices freely in response to market pressures without worrying about substitution effects.
Believe or not, economic models don’t say that the producer automatically gets to pass along 100% (or 110% just to cover any future inflation…) of rising costs. Depending on the elasticity curve they might have to suck it up. There’s absolutely no law that says that profits have to stay constant. In fact, gaining market share often meant that you sacrificed profit for a bigger chunk of business—but if you already own most of the eggs in say, New England, then who cares?
I literally just read a story about egg prices. The fact that Cal-Maine foods own 20% of the market and exercises “seat discipline” means that there is little slack for when things like bird flu happens.
And that whole thing about refineries happening to close down for maintenance is *exactly* what happens in California. Yes, regulations make it tough to build new refineries here, but that gives them perfect cover to maybe take a day extra or use their B-team. Who cares when it’s offline and you lose some sales, the one you do make triple your profit.
That software that 80% of the corporate landlords use to price their rental units often recommends crazy high prices or just withholding units from the market until perhaps “the busy season” or what have you. (What cartel? Plausible disability. The algorithm just spits out a price based on “market rates”.)The net effect is that you push vacancies up by a percent or two, which in an already tight market like NYC or SF can mean huge rent increases.
Corporations are not inherently “greedier”than your mom and pop, but they have size, money and power to enforce “discipline” and tacit collusion.
US capitalism used to be synonymous with abundance. The problem is that there’s a whole lot more money to be made if there’s some scarcity. That has become shocking clear after the pandemic.
As regards Taylor Swift, the Ticketmaster/Live Nation monopoly also is also the biggest SECONDARY market for tickets. They do a pretty good job in cleaning up much of the surplus they / the performers leave on the table the first time around. They are the scalpers!
As for restaurant reservations: putting aside the very trendiest places, we see of course see scarcity at work—qualified labor is tough to come by and retail rents are much higher than they used to be. (despite all the vacancies—curious why supply always works to raise and never lower prices these days? There’s something going on in aggregate—the forest—looking at a tree tells you almost nothing.)
I suspect that a lot of restaurants have also figured out that people willing to wait 30 minutes for a table are not those that value their time I.e. not likely to be the big spenders. So *more* seats are available via reservation, which means that the stand by line gets worse, making reservations *even more* attractive.
A small shortage of primary care doctors after Covid means concierge medicine looks attractive, more doctors go into concierge medicine, the experience for everyone else left in the general pool becomes worst, pretty soon you are paying an intermediary to get you into one of those concierge places.
These doom loops are terrible but generate lots of profit. It will get worse for the rest of us unless we address the primary scarcities: not enough doctors graduating from medical school, and the physician groups owned by dominant hospitals and private equity taking the surplus that could be reinvested into hiring more doctors and allowing them to work fewer hours so that they don’t get burnt out and decide to go into concierge medicine like my sister-in-law.
My UCLA group doctor pretty much yelled at me for suggesting that wait times had increased quoting doctor shortages, while at the same time UCLA concierge medicine advertises greater convenience for working professionals. Make it (or allow) things to get worse and then profit from it is the 21st Century American way.