How the Client Effect Moderates Price Competition

Lee, Dwight R.; McKenziet, Richard B.

doi:10.2307/1060790

Cited by 3 publications

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“…In a seminal paper, Becker (1991Becker ( , p.1109 posed the puzzle why popular restaurants with persistent queues do not raise their prices, thus reducing the queues while expanding profits. 1 Becker's paper has influenced a substantial literature in various branches of economics including demand theory (Pesendorfer, 1995;DeGraba, 1995;DeSerpa and Faith, 1996;Katz and Spiegel, 1996;Smith, 1999 andMetrick andZeckhauser, 1999), price theory (Karni and Levin, 1994;Rozen and Rosenfield, 1997;McKenzie, 1998 andBoyer andMoreaux, 1999), information economics (Bikhchandani et al, 1992;Carminal and Vives, 1996;Zhang, 1997;Vettas, 1998;Aoyagi, 1998;Welch, 1999, Hung andPlott, 2001;and Albrecht et al, 2002), the theory of rationing (Denicolo' and Garella, 1999;DeGraba andMohammed, 1999, Gilbert andKlemperer, 2002), the theory of auction markets (Bulow and Klemperer, 2002), and environmental economics (Silby, 2001). Becker's note has also inspired sociologists and psychologists (see among others Kirman, 1993;Karni and Levin, 1994;Bose, 1996, Winston, 1999, Pastine and Pastine 2002.…”

Section: Introductionmentioning

confidence: 99%

Why do successful restaurants not raise their prices?

Folmer

Leen

2012

Lett Spat Resour Sci

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Becker (1991) addresses the problem of persistent queues at popular restaurants. He poses the question why such restaurants do not raise their prices, thus reducing the queues while expanding profits. He presents a solution based on the assumption that demand by a typical visitor to such a restaurant depends positively on the quantities demanded by others which could be so strong that the market demand curve slopes upward. For an equilibrium to emerge, Becker introduces a free lottery. We show that Becker's lottery is based on assumptions which may hold in the case of spontaneously emerging queues, but not in situations like popular restaurants where consumers apply self -rationing. In both cases, however, every individual's demand function, in addition to price, depends on effective demand rather than on aggregate demand. Using the forces underlying aggregated demand, we show that Becker's solution leads to excess supply rather than excess demand. We use the all-or-nothing demand curve and the notion of patient consumer to show that a popular restaurant (and other firms facing persistent queues) sets a price such that equilibrium is achieved while long run demand is upheld.

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Section: Introductionmentioning

confidence: 99%

Why do successful restaurants not raise their prices?

Folmer

Leen

2012

Lett Spat Resour Sci

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Microeconomics for MBAs

McKenzie¹,

Lee²

2010

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The textbook that develops the economic way of thinking through problems that MBA students will find relevant to their career goals. Theory and math is kept as simple as possible and illustrated with real-life scenarios. This textbook package includes online video tutorials on key concepts and complex arguments, and topics likely to be assessed in exams. The distinguished author team has developed this textbook over 20 years of teaching microeconomics to MBA students. Chapters are clearly structured to support learning: Part I of each chapter develops key economic principles. Part II draws on those principles to discuss organizational and incentive issues in management and focuses on solving the 'principal-agent' problem to maximize the profitability of the firm – lessons that can be applied to problems MBAs will face in the future. Economics and management are treated equally; this unique textbook presents economics as part of the everyday thinking of business people.

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Monopoly: A Game Economists Love to Play: Badly!

McKenzie¹

2004

Southern Economic Journal

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iving this presidential address to the Southern Economics Association is more of a privilege than a duty of office. I suspect that I am more honored to give this talk than has been true of most past presidents of the Association, given my current academic post in California. I may be far removed from my southern heritage in space, but not in orientation. My heart remains tied to the South. I am very pleased that the SEA board and members did not consider my current California connection as a disqualification for president of the Association. When I started in this profession as a "southern economist," now nearly four decades ago, I never imagined that I would one day have this opportunity. And it is a distinct opportunity. Not only do I have a chance to talk to you this afternoon on a topic of my choosing, I also know that my talk will be published. Nevertheless, the opportunity I have this afternoon also carries with it a daunting duty: to develop an argument of some consequence on a topic that can be adequately developed in a talk, without resort to the usual graphs and equations. A presidential address is not intended to be a seminar, nor should it be one. I submit that such a talk should be venturesome, that is, should address fundamental issues at the heart of what we do and, at the same time, pose a challenge to conventional thinking. In choosing my topic for this address, I take to heart the words of Lord Acton that James Buchanan quoted at the start of his presidential address back in the early 1960s, which for me remains the quintessential model for all such addresses, "[I]t is not the popular movement, but the traveling of the minds of men who sit in the seat of Adam Smith that is really serious and worthy of all attention" (Acton, 1904, p. 212). I have written much over the years for the "popular movement," as many of you know. However, for this talk I want to focus on "the traveling of our collective minds," as represented by conventional wisdom within the profession. In the end, for all of us who aspire to sit in the seat of Adam Smith, it is in the ongoing battle of fundamental ideas-for space in what will eventually become "conventional wisdom"-that we will likely make our most lasting mark. My topic for the talk is monopoly. Indeed, this is a topic very familiar to those who sit in Adam Smith's seat. Perhaps the theory of monopoly is so firmly established in microeconomic theory that you might wonder how I could possibly think there is anything novel to say about it. However, I submit that our theory of monopoly is in serious need of repair, especially since it is so widely studied and, because of embedded problems, is so

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How the Client Effect Moderates Price Competition

Cited by 3 publications

References 8 publications

Why do successful restaurants not raise their prices?

Why do successful restaurants not raise their prices?

Microeconomics for MBAs

Monopoly: A Game Economists Love to Play: Badly!

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