Customers pay for food consumed, not time spent in the establishment.

Maybe at McDonalds….

At an actual restaurant if you sell a meal you would generally expect the guest(s) to stay for a certain amount of time.

I accept the demand side story you guys are telling, I just think you are too quick to write off the possible supply side aspect, even if it is is a relatively small part of the reason we witness high prices on public holidays.

My local curry restaurant offers much cheaper prices for take away meals. The unit production cost of this meal is the same as if I dine in yet they offer a much cheaper price. Sure, part of this is likely to be price discrimination given that people who want takeaway meals will generally be more price sensitive, but part of it could also be due to the fact that the restaurant doesn’t need to employ a waiter to look after you for the next 40 mins.

Having worked in hospo for a while I have seen plenty of situations where willing customers have been kicked out of the bar (not because it’s too late or they are too drunk!) because the revenue from drinks they are purchasing won’t cover the bartenders wages for another hour. Given that over this increment the bartenders wages are avoidable the bar shuts. On your logic the bartender is a fixed cost and since the price of a beer exceeds the marginal cost the bar would stay open since they are making a contribution to fixed costs.

Obviously my examples are of some fairly specific marginal situations. Do these justify a full 20% price increase by themselves? probably not.

I’m fairly convinced now that the demand side story is probably the main explanation, I just think the way service based restaurants price and view the incremental nature of their cost structure is quite different from McDonalds which more closely resembles a factory…

The Road Transport Forum does it all the time when diesel prices rise saying it will drive up transport costs and so signalling its members to follow, and when prices fall it then says that charges won;t fall as fuel only makes up a small part of operators’ costs to try and manage customer expectations and price cutting.

It’s interesting now to see cafe consumers responding and competition emerging.

PS I don’t think McDs did crunch numbers. Changing prices is annoying and they probably just thought it was too much hassle and too brand damaging.

Now if there was more competition then, maybe you would not see such a significant level of price differential, but then since it is a repeat game dependent on the original starting conditions (govt regulation) the first step was to add a price differential and now there would be strong incentives on all participants to maintain the differential (cartel behaviour). The question would be what size of change in the game is required for the incentives to move from cartel to competition. At the moment I suspect profits from the cartel compensate against any incentive to compete.