By Mark Whitehouse
Over the next few days, throngs of economists will sample Chicago's restaurants as they gather in the Windy City for the annual meeting of the American Economic Association. One establishment that should pique their interest: Next, the latest creation of celebrity chef Grant Achatz.
It's not so much the intricate menu, which shifts every three months to new themes with names such as Childhood and elBulli. It's the reservation system, which requires prospective patrons to buy tickets -- the restaurant was selling them in very small lots on its Facebook page this week at $100 apiece -- as if they were attending a concert or a sporting event. For those who miss out on buying directly from the restaurant, there's a secondary market, where ticket holders sell their seats at a markup.
The ticket system represents a sort of experiment in quantifying an economic concept: Consumer utility. In principle, prices in the secondary market should reflect the actual value diners place on a visit to the restaurant. Judging from reports of the prices tickets have fetched, that value can be as much as $500 to $3000. No wonder new tickets sell out in a matter of seconds whenever Next makes them available on its site.
For economists, this is a problem. The large difference between the original sale price and the secondary-market price suggests that the restaurant's proprietors are leaving a lot of money on the table. One solution: Auction seats to the highest bidder.
The owners of Next don't want to be seen as money-grubbing types. According to the restaurant's Facebook page, they decided against running an auction because it "would set pricing too high for our sense of value for the meal."
Over dinner at another Chicago restaurant, economists Justin Wolfers and Betsey Stevenson, both of the Wharton School at the University of Pennsylvania, said the restaurateurs' logic doesn't fly. "It's democratic in theory, but not in practice," said Wolfers.
The system may seem more egalitarian because it requires time -- something that everyone has the same allotment of. Anyone with the patience to sit at a computer screen and constantly refresh the restaurant's website stands a decent chance of getting a ticket at the restaurant's price.
In practice, though, that doesn't mean less-affluent foodies can actually afford the tickets. If a person can sell a ticket for $3,000, the true cost of going to the restaurant -- what an economist would call the opportunity cost -- is $3000, because that's how much money the person is giving up for the meal.
In short, the folks at Next might want to consult some economists. If they want to do good, they might consider selling tickets to the highest bidder and giving the extra money to charity.
Got a better idea? Let us know in the comments section.
(Mark Whitehouse is a member of the Bloomberg View editorial board.)-0- Jan/06/2012 17:47 GMT