Tuesday 1 January 2008

Wine and restaurants

In his book Freedomnomics: Why the Free Market Works and Other Half-Baked Theories Don't, John Lott makes the interesting argument that some drinks -tea, coffee and wine for example- cost more in restaurants than in stores because people linger longer over over meals that include them. The addition cost is a table rental charge. The longer people spend over a meal the more money the restaurant loses by not being able to sell extra meals to other people at that table. So the high cost of wine in a restaurant amounts to an opportunity cost. This cost is in addition to the inventory cost of having to hold stocks of many different types of liquor.

But this does raise a question, What about BYOs? People linger just as long over a bottle of wine they bring as opposed to one they buy from the restaurant, so how do BYOs recover the rental costs of a table? The inventory costs will be less for BYOs but they still have the opportunity cost of a table. Do meals cost more in BYOs than in licensed restaurants, all else constant? Do BYOs have faster turnover of customers, to reduce table opportunity costs?

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