NDLI: Why do successful restaurants not raise their prices? : Market forces of demand and the all-or-nothing demand curve

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Why do successful restaurants not raise their prices? : Market forces of demand and the all-or-nothing demand curve

Content Provider	Springer Nature Link
Author	Folmer, Henk Leen, Auke
Copyright Year	2012
Abstract	Becker (J Political Econ 99:1109–1116, 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.
Starting Page	81
Ending Page	90
Page Count	10
File Format	PDF
ISSN	18644031
Journal	Letters in Spatial and Resource Sciences
Volume Number	6
Issue Number	2
e-ISSN	1864404X
Language	English
Publisher	Springer Berlin Heidelberg
Publisher Date	2012-09-24
Publisher Place	Berlin, Heidelberg
Access Restriction	One Nation One Subscription (ONOS)
Subject Keyword	Persistent excess demand Bandwagon effect Queue Waiting list Long run demand curve Short run demand curve Becker All-or-nothing demand curve Patient consumer Regional/Spatial Science Agricultural Economics Geographical Information Systems/Cartography Landscape/Regional and Urban Planning Environmental Economics Demography
Content Type	Text
Resource Type	Article
Subject	Geography, Planning and Development Urban Studies Demography Economics and Econometrics

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