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October 21, 2006

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Cory Hojka

And here I always thought that the most expensive thing I could order on the menu was limited by whatever the law firm partner ordered while taking me out to lunch.

Just kidding, but I think the influence of framing is likely partially driven by how others perceive us. Dining out is largely a social affair, so I'd assume that diners might not want to order something that others at the table might consider extravagant. Thus, putting a few more expensive items on the menu could help minimize the social cost of ordering more luxurious entrees.

LAK

Some in the restaurant business, when they want to move inexpensive wine inventory, will make the price of the bottle they wish to sell the most of the second least expensive on the menu.

The notion that demand exists in some kind of a-contextual vacuum, and that human beings behave rationally and make informed choices when they can is one of the more amusing assumptions of standard economics.

Maya Cadwell

I've heard a lot about this in marketing class. Even at the GSB, marketing professors teach that consumers do not always behave rationally (although we generally assume investors do).

Firms play around with quality and quantity in a similar fashion. Like, offering a crock pot with most of the bells and whistles for $60, and then one for $80 that has all the bells and whistles.

The purpose is to make people view the second crock pot as a great deal. Of course the result is selling more crock pots than you would've otherwise. Empirical evidence suggests that this does work.

Related, there's much research around '99' pricing - customers seem to think they're getting a better deal for $6.99 than for $6.00. Fascinating stuff.

Cory Hojka

Looks like when it comes to high-priced entrees, New York is nothing but a follower:

The Curse of the $50 Entree
http://www.chicagotribune.com/entertainment/chi-0610260159oct26,1,1097897.story?coll=chi-entertainmentfront-hed

priscieve

What's so irrational about not wanting to seem like a cheapskate? Going to a restaurant is not just about fulfilling nutritional needs. As someone poined out, going to a restaurant is a social event & there are many more aspects to the purchasing decision than price.

Not to mention, the idea of rationality allows for wrong decisions in order to become informed. So long as in the long run, or when I'm fully informed, I make a rational decision. So at first I don't know the wines, I don't know what I like, I'm not sure what's worth the price...but (exluding social status elements) I still choose the wine I like the least even though it's more expensive than one I like, well now I'm irrational...and I don't think people behave irrationally.

MMJQ

"Standard economics says that the existence of a choice that you would reject anyhow shouldn’t influence choices that you actually make"

Maybe, but even a standard economist would realize that's more a suggestion than a law.

Economics is intimately tied to psychology, and that's hard to predict. Would the addition of a $40 plate make a given person more likely to purchase the $35 plate? It depends on the person. Would it make more people buy it in general? Of course.

This effect probably exists at every price point for a catalogue of comparable products. Take a product you sell, add a more expensive version of it to the catalogue, and the demand curve for your product shifts to the right.

Joan A. Conway

In reaching settlements there is the perceived concept of the advantage, when the settlement relief is not known to all parties. It is a matter of reaching a midway point from the high and the spoken low point to accept what lies in the middle. If one is smart and wants to get rid of the conflict fast, I recommend that the disadvantaged party accepts to low figure, file a notice of appeal, and ask for a review under the premise of being coerced into a settlement. If unsuccessful in the appeal, file a compliant of negligence, misrepresentations, or fraud, and intentional interference and honest services about the risk and reward against a party at a disadvantaged because of the adversarial action and spoiled evidence, etc. Appeal on the basis of unconstitutional, illegal, and void statute, Article III, Section 2, Article VI, Supremacy Clause, Separation of Powers, etc., for another chance at a judicial review proving standing, ripeness, injury, outcome, justifiability, and not a political question, being specific about the causal relationship between the challenged statute and the injury without recourse in any interpretation the judiciary may bring forward to avoid the unconstitutional decision. But have heart, this is so time consuming and difficult, it makes the low offer appealing for being timely and efficient and keeping the cost of litigation down. This is not your game, if you cannot wait for the conclusion of the litigation on all counts, finality, and judicial review based on Article III, Section 2 standing and the issuance of rules to avoid the constitutionality of the question - not capable of judicial decision.

BK

Ordering in this fashion is perfectly rational. Price is a decent way to select for quality absent other information.

If you're not familiar with the menu and don't have a friend's tip about what to order, it's a safe bet that items a step or two down from the top-priced items will be good. They are the mainstays of the menu in any restaurant.

As also pointed out above, lots of people draw utility from having fellow diners perceive them as non-cheapskates- or at least not to do something that seems unusual. If you're trying to get a million dollars' worth of business from someone across the table from you, you might not want to rock the boat any. Ordering only a side salad and a soft drink is an odd choice, whereas buying an expensive second-tier menu item will never draw a raised eyebrow.

To the extent they're gaming you a little, I think every consumer is aware the restaurant is in business to make money. Raising the top-end prices to induce you to pay more for second-tier items just means you are in-- an expensive restaurant.

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