Misery loves company: social influence and the supply/pricing decision of a popular restaurant
In a model with social influence, Becker (1991) offers an explanation for why popular restaurants with excess demand do not raise their prices. He also offers an explanation for why such restaurants do not increase supply but admits his explanation may be weak. Becker does not provide a formal analysis of why supply is not increased. In this paper, I present a formal analysis of Becker's argument based on a different kind of social influence. I also offer an alternative explanation of why some restaurants are popular and others are not. Finally, while Becker (1991) includes market demand and the gap between market demand and supply as separate arguements in the customers' demand function to explan why supply and price are not increased. I only include the gap between demand and supply in the customers' utility function to explain both puzzles.
|Date of creation:||2000|
|Date of revision:||14 Sep 2000|
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- Kandel, Eugene & Lazear, Edward P, 1992.
"Peer Pressure and Partnerships,"
Journal of Political Economy,
University of Chicago Press, vol. 100(4), pages 801-17, August.
- Karni, Edi & Levin, Dan, 1994. "Social Attributes and Strategic Equilibrium: A Restaurant Pricing Game," Journal of Political Economy, University of Chicago Press, vol. 102(4), pages 822-40, August.
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- Gary S. Becker, 1991.
"A Note on Restaurant Pricing and Other Examples of Social Influences on Price,"
University of Chicago - George G. Stigler Center for Study of Economy and State
67, Chicago - Center for Study of Economy and State.
- Becker, Gary S, 1991. "A Note on Restaurant Pricing and Other Examples of Social Influences on Price," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 1109-16, October.
- Besley, T. & Coate, S., 1990.
"Understanding Welfare Stigma: Taxpayer Resentment And Statistical Discrimination,"
42, Princeton, Woodrow Wilson School - Discussion Paper.
- Besley, Timothy & Coate, Stephen, 1992. "Understanding welfare stigma: Taxpayer resentment and statistical discrimination," Journal of Public Economics, Elsevier, vol. 48(2), pages 165-183, July.
- Krugman, Paul, 1991. "History versus Expectations," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 651-67, May.
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