A fancy new restaurant in Chicago has a pricing strategy that's driving economists (and scalpers) wild: It sells tickets. For a price — paid weeks in advance, no refunds allowed — you get a set meal at Next, which is run by a famous chef named Grant Achatz.
This means the restaurant doesn't have to deal with reservations. It doesn't have to pay people to answer the phone all day. It also means customers can't bail on the restaurant at the last minute.
Like seats on airplanes, the restaurant's tickets are more expensive for days and times when demand is highest. (This is the first thing the economists get excited about.) The price ranges from roughly $45 to $75, according to the NYT.
Tickets aren't refundable. But they are transferable. In other words, you can sell your ticket to someone else. This, not surprisingly has led to people trying to scalp their tickets. (This is what's driving economists wild.)
Economists are very excited by all this pricing action. A couple Northwestern guys who blog at Cheap Talk — Sandeep Baliga and Jeff Ely — have a lot to say.
Baliga likes the basic idea of selling tickets at different prices for different times. He writes:
This is classic profit-maximizing price-discrimination. At times where demand is high, charge a high price; when demand is low charge a low price and keep the restaurant busy when all the lights are on and chefs are in the kitchen.
(For more on price discrimination, read our recent post on Groupon.)
But, given all the scalping action, Baliga has a recommendation for Next: Auction tickets to the highest bidder. (Economists love auctions.) This would allow the restaurant to capture a lot of the money that's now going to scalpers.
In a separate post, Ely takes a more nuanced approach. Sure, an auction brings maximum dollars to the restaurant in the short term. But maximizing short-term revenue is only part of the picture.
...you want to balance revenue maximization against the good vibe that comes from getting a ticket at a non-exorbitatnt price.
His suggestion: Auction off half of the tickets, and sell the other half at a fixed price. Then create an online resale market on the restaurant's Web site for people who want to sell their tickets.
His full plan is actually much more complicated and nuanced than this. It includes 8 numbered points. You can read the whole thing here.