Friday, September 11, 2015

Uber as a restaurant

This is Joseph.

Mark sent me this piece on surge pricing for Uber.  He mentioned some thoughts about surge pricing in other industries.  I got permission to scoop him in talking about one specific example: restaurants.  If we are lucky, a broader post on this topic is about to show up.   

One example of "surge pricing" that I have often noticed is the existence of a lunch menu at expensive dinner restaurants.  You can often get the same or a similar entrée at a rather substantial discount if you show up at the (comparatively less busy) lunch hour than in the evenings.  Take a look at this example of cheaper lunch entrees

So why is this differential pricing not as annoying?  I think the answer is predictability.  One can look at the menu and make a decision about whether or not to dine.  It can be checked online in advance.  If a taxi service suddenly shoots up in price then it is unclear whether you can still afford it.  The key is the inability to plan, likely coupled with some lack of trust (how do I know for sure that there is a real car shortage?). 

So I suspect that the industry would get less overall push-back with peak/off-peak pricing.  I occasionally see this used for things like road tolls, for example, with very little of the opposition that surge pricing creates.  Because people can plan for the costs, and some marginal customers will opt for off-peak pricing (smoothing earnings and making everyone happier). 

EDIT: Mark points out that these are dips, and that off-peak discounts are somewhat different.  I think he's got a point, as the psychology of loss aversion might matter here.  But I think the predictability point survives this question.


  1. There can be other reasons for a lower price at lunchtime. In some restaurants, the lunchtime portions are smaller. The number of side dishes included in the entrée price may be less. And in the business district, customers typically occupy the lunch table for a shorter period of time than they do at dinner. In fact, in the business district, the lunch hour may be more congested than dinner time (so much so that some restaurants are not open for dinner) but still carry the lower price tag.

    1. How about happy hour? The drinks may be watered down but the beer and wine should be the same.

      Of course, happy hour may be more of a loss leader, but that's a topic for a different post.