We at Economic Forces are big fans of supply and demand. Critics, however, might ask how we explain prices that do not clear the market — in other words why, in some markets, there seems to be excess supply or excess demand at the current price that doesn’t result in a change in price.
I agree with you that "The relevant question for thinking about which alternative that consumers would prefer appears to be whether the monetary costs and time costs with constant pricing are greater than the monetary costs and search costs with variable pricing" but I don't think it's clear why one would be greater than the other. The preceding passage where you go through the costs to the consumer uses the same logic that one would use to justify a variable price scheme.
"From the perspective of the customer, a constant [wait time] throughout the day creates a reliability in terms of [time] cost per unit of quality. Those with different [monetary] costs can therefore choose to eat at different times per day. Furthermore, consumers not only have reliable information about [time cost] per unit of quality, but also about the approximate [prices] at various different times per day."
"If it is noon and I want Chik-Fil-A, this pricing strategy allows me to show up and avoid a line. However, I have a maximum willingness to pay for a chicken sandwich. If I show up and the [time cost] is above my willingness to pay, I have to eat somewhere else or I have to come back later to check the [line]."
So there are also search costs to finding a restaurant that isn't busy. I return to the question you posed at the start. Why doesn't chik-fil-a monetize these costs? The price of the sandwich does change throughout the day, and this changing price (through the length of the line) already imposes search costs on consumers who need a quick bite. Search costs for prices don't seem like they would be higher than search costs for wait times. It's probably much easier to measure and post the prices online than the wait times.
"The relevant question for thinking about which alternative that consumers would prefer appears to be whether the monetary costs and time costs with constant pricing are greater than the monetary costs and search costs with variable pricing"
The internet has helped reduce search costs significantly, which made it easier for businesses such as ride hailing and food delivery apps to use variable pricing [Uber, DoorDash et cetera]
Not sure if this is the correct venue, but question/idea for future post:
The Economist had an article last week about the opioid epidemic. They say: "When the DEA tested sample pills from drug seizures between January and March of 2019, 27% contained a lethal dose of fentanyl."
My question: why would a drug cartel sell a product that is likely to kill their customer 1-out-of-every-4 times their product is used? Surely it would be in their interest to keep their customers alive, to ensure future sales. Can this phenomenon be explained with microeconomics?
I agree with you that "The relevant question for thinking about which alternative that consumers would prefer appears to be whether the monetary costs and time costs with constant pricing are greater than the monetary costs and search costs with variable pricing" but I don't think it's clear why one would be greater than the other. The preceding passage where you go through the costs to the consumer uses the same logic that one would use to justify a variable price scheme.
"From the perspective of the customer, a constant [wait time] throughout the day creates a reliability in terms of [time] cost per unit of quality. Those with different [monetary] costs can therefore choose to eat at different times per day. Furthermore, consumers not only have reliable information about [time cost] per unit of quality, but also about the approximate [prices] at various different times per day."
"If it is noon and I want Chik-Fil-A, this pricing strategy allows me to show up and avoid a line. However, I have a maximum willingness to pay for a chicken sandwich. If I show up and the [time cost] is above my willingness to pay, I have to eat somewhere else or I have to come back later to check the [line]."
So there are also search costs to finding a restaurant that isn't busy. I return to the question you posed at the start. Why doesn't chik-fil-a monetize these costs? The price of the sandwich does change throughout the day, and this changing price (through the length of the line) already imposes search costs on consumers who need a quick bite. Search costs for prices don't seem like they would be higher than search costs for wait times. It's probably much easier to measure and post the prices online than the wait times.
Great read!
"The relevant question for thinking about which alternative that consumers would prefer appears to be whether the monetary costs and time costs with constant pricing are greater than the monetary costs and search costs with variable pricing"
The internet has helped reduce search costs significantly, which made it easier for businesses such as ride hailing and food delivery apps to use variable pricing [Uber, DoorDash et cetera]
Not sure if this is the correct venue, but question/idea for future post:
The Economist had an article last week about the opioid epidemic. They say: "When the DEA tested sample pills from drug seizures between January and March of 2019, 27% contained a lethal dose of fentanyl."
My question: why would a drug cartel sell a product that is likely to kill their customer 1-out-of-every-4 times their product is used? Surely it would be in their interest to keep their customers alive, to ensure future sales. Can this phenomenon be explained with microeconomics?
https://www.economist.com/united-states/2021/05/15/last-year-more-people-in-san-francisco-died-of-overdoses-than-of-covid-19