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Business strategy and the social norm of tipping

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  • Azar, Ofer H.

Abstract

Tipping is an important economic phenomenon, involving about $47Â billion a year in the US food industry alone, and trillions of dollars across different occupations and countries over the years. Moreover, tipping is a major source of income for millions of workers. This article discusses the implications of tipping for business strategy in the relevant industries. For example, firms can choose to impose a compulsory service charge in lieu of tipping - what are the advantages and disadvantages of doing so? How does tipping change the profit-maximizing level of investing in screening job applicants, training workers, monitoring them, and providing performance-based incentives by the firm? Can industries such as the music industry use tips (i.e., prices being voluntary and determined by the customers) as an alternative business model?

Suggested Citation

  • Azar, Ofer H., 2011. "Business strategy and the social norm of tipping," Journal of Economic Psychology, Elsevier, vol. 32(3), pages 515-525, June.
  • Handle: RePEc:eee:joepsy:v:32:y:2011:i:3:p:515-525
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    References listed on IDEAS

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    1. Ofer H. Azar, 2004. "Optimal Monitoring with External Incentives: The Case of Tipping," Southern Economic Journal, John Wiley & Sons, vol. 71(1), pages 170-181, July.
    2. Azar Ofer H, 2008. "Strategic Behavior and Social Norms in Tipped Service Industries," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 8(1), pages 1-18, March.
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    Cited by:

    1. Azar, Ofer H., 2019. "The influence of psychological game theory," Journal of Economic Behavior & Organization, Elsevier, vol. 167(C), pages 445-453.
    2. Lynn, Michael, 2016. "Why are we more likely to tip some service occupations than others? Theory, evidence, and implications," Journal of Economic Psychology, Elsevier, vol. 54(C), pages 134-150.
    3. Thrane, Christer & Haugom, Erik, 2020. "Peer effects on restaurant tipping in Norway: An experimental approach," Journal of Economic Behavior & Organization, Elsevier, vol. 176(C), pages 244-252.
    4. Azar, Ofer H. & Yosef, Shira & Bar-Eli, Michael, 2015. "Restaurant tipping in a field experiment: How do customers tip when they receive too much change?," Journal of Economic Psychology, Elsevier, vol. 50(C), pages 13-21.
    5. Shijie Lu & Dai Yao & Xingyu Chen & Rajdeep Grewal, 2021. "Do Larger Audiences Generate Greater Revenues Under Pay What You Want? Evidence from a Live Streaming Platform," Marketing Science, INFORMS, vol. 40(5), pages 964-984, September.
    6. Parrett, Matt, 2015. "Beauty and the feast: Examining the effect of beauty on earnings using restaurant tipping data," Journal of Economic Psychology, Elsevier, vol. 49(C), pages 34-46.
    7. Dyussembayeva, Shynar & Viglia, Giampaolo & Nieto-Garcia, Marta & Mattila, Anna S., 2022. "Would you like to add a gratuity? When explicit requests hamper tipping," Journal of Business Research, Elsevier, vol. 139(C), pages 908-917.
    8. Lynn, Michael, 2021. "The effects of injunctive and descriptive tipping norms on tipping behavior and motives," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 95(C).
    9. Natter, Martin & Kaufmann, Katharina, 2015. "Voluntary market payments: Underlying motives, success drivers and success potentials," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 57(C), pages 149-157.
    10. Conlisk, Sarah, 2022. "Tipping in crises: Evidence from Chicago taxi passengers during COVID-19," Journal of Economic Psychology, Elsevier, vol. 89(C).
    11. Lynn, Michael, 2016. "Motivations for tipping: How they differ across more and less frequently tipped services," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 65(C), pages 38-48.
    12. Stefan Gössling & Sébastien Fernandez & Carlos Martin-Rios & Susana Pasamar Reyes & Valérie Fointiat & Rami K Isaac & Merete Lunde, 2020. "Current Issues in Tourism Restaurant tipping in Europe: a comparative assessment," Post-Print hal-02546589, HAL.
    13. Shiro Hori & Sachi Syugyo, 2020. "The function of international business frameworks for governing companies’ climate change-related actions toward the 2050 goals," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 20(3), pages 541-557, September.
    14. Weiqiang Tan & Jian Zhang, 2021. "Good Days, Bad Days: Stock Market Fluctuation and Taxi Tipping Decisions," Management Science, INFORMS, vol. 67(6), pages 3965-3984, June.
    15. Elif Aydin, Asli & Acun, Yüksel, 2019. "An investigation of tipping behavior as a major component in service economy: The case of taxi tipping," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 78(C), pages 114-120.
    16. Lynn, Michael & Jabbour, Patrick & Kim, Woo Gon, 2012. "Who uses tips as a reward for service and when? An examination of potential moderators of the service–tipping relationship," Journal of Economic Psychology, Elsevier, vol. 33(1), pages 90-103.
    17. Wamsler, Julia & Natter, Martin & Algesheimer, René, 2022. "Transitioning to dynamic prices: Should pricing authority remain with the company or be delegated to the service employees instead?," Journal of Business Research, Elsevier, vol. 139(C), pages 1476-1488.
    18. Conlisk, Sarah, 2021. "Tipping in Crises: Evidence from Chicago Taxi Passengers during COVID-19," OSF Preprints brvhp, Center for Open Science.
    19. Medler-Liraz, Hana & Seger-Guttmann, Tali, 2021. "The joint effect of flirting and emotional labor on customer service-related outcomes," Journal of Retailing and Consumer Services, Elsevier, vol. 60(C).
    20. Lynn, Michael, 2021. "The effects of occupational characteristics on the motives underlying tipping of different occupations," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 95(C).
    21. Damon Alexander & Christopher Boone & Michael Lynnb, 2021. "The Effects of Tip Recommendations on Customer Tipping, Satisfaction, Repatronage, and Spending," Management Science, INFORMS, vol. 67(1), pages 146-165, January.
    22. Andrej Raspor, 2011. "The Use of Techniques for Increasing Servers’ Tips," Academica Turistica - Tourism and Innovation Journal, University of Primorska Press, vol. 4(2), pages 65-76.
    23. Frank, David G. & Lynn, Michael, 2020. "Shattering the Illusion of the Self-Earned Tip: The Effect of a Restaurant Magician on Co-Workers’ Tips," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 87(C).
    24. Lynn, Michael, 2018. "How motivations for tipping vary with occupational differences in descriptive tipping norms," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 77(C), pages 1-10.
    25. Oz Shy, 2015. "Do Tips Increase Workers' Income?," Management Science, INFORMS, vol. 61(9), pages 2041-2051, September.

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