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In Pursuit of Understanding Markups in Restaurant Services Prices

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  • Mustafa Utku Ozmen

Abstract

Measuring markups in the services sector is a difficult task. For the case of restaurants, although the sales price is observed, cost of the product served is unobserved. Here we employ an intuitive framework and focus specifically on markups on soft drinks. This is reasonable in two ways: First, there is no quality bias as we consider the relative price of canned soft drinks served at restaurants compared to those sold in supermarkets. Second, beverages are considered as an important source of profit for restaurants. We analyze the determinants of markups on soft drinks in restaurants in Turkey over the 2006-2014 period. Results suggest that current demand and cyclical conditions (net minimum wage, output gap), major cost items (food and energy prices, exchange rate) and economic uncertainty (measured as exchange rate volatility) significantly affect markups. This identification strategy enables the detection of relevant factors which may not be possible to identify otherwise.

Suggested Citation

  • Mustafa Utku Ozmen, 2016. "In Pursuit of Understanding Markups in Restaurant Services Prices," Working Papers 1602, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    • Handle: RePEc:tcb:wpaper:1602
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    More about this item

    Keywords

    Restaurant services; Markup; Minimum wage; Turkey;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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