“Our findings suggest that increases in the real price of one calorie in food for home consumption and the real price of fast-food restaurant food lead to improvements in obesity outcomes among youths. We also find that an increase in the real price of fruits and vegetables has negative consequences for these outcomes.”
Touring Bamberg, northern Bavaria, our tour leader mentions the local 1907 Beer War. The town’s three brewers announced that they were joining to raise suggested retail prices from 10 to 12 pfennigs and charge retailers commensurately more. The pub owners felt the public would be angry and refused to buy from the cartel. After one dry day they instead began “importing” beer from nearby towns. The public’s thirst was slaked — still at 10 pfennigs a glass. After a week of no beer sales, the local brewers caved in and cut their asking price to 10 pfennigs a glass. Moral of the story: even with just three players, it’s hard to maintain a cartel if there are ready substitutes for the product. (HT to MP)
In a recent column in the New York Times, Jane Brody quotes a nutrition professor lamenting the fact that “restaurants have resisted her suggestion to serve half the amount of food for about a third the price.” The professor might have thought more about economic behavior. (Even if she had suggested cutting the price to half for one-third the food, it still would not have been good economic analysis. The labor costs of preparing and serving half the food are probably nearly identical to those of serving the full amount.)
As a teen Max had a great business mowing lawns. He used his hand-pushed power mower to build up a large clientele in a radius of his family’s house. When his friend and neighbor Charlie entered the business, ending Max’s local monopoly, Max didn’t have to cut his price—Charlie just expanded the radius of the client area.
Max knew he had problems, however, when he saw Charlie drive out of his garage on a riding mower. Charlie could now do four times as many lawns/day as Max. Max started losing customers when Charlie cut prices, as he could afford to (because his average cost/lawn was lower than Max’s and had a minimum with a higher output.) Not wanting to compete on price, and unable to get his parents to buy a riding mower, Max decided his opportunity cost was above his now lower lawn-mowing wage, and he quit the business to open a lemonade stand. (HT to MF)