Markets in Everything: Valentine’s Edition

by on February 11, 2005 at 7:15 am in Economics, Food and Drink | Permalink

This one is about how markets go wrong.

For $40, Without Reservations will sell you a dinner reservation for Valentine’s Day at a top-notch restaurant in New York, San Francisco or LA.  How do they get the reservations?  Simple, WR calls up restaurants a few weeks before a big event and they reserve under a fake name (you are in fact buying the fake name.)  So all this "service" is doing is selling you something for which they in part have created the shortage. 

True, scalping can create some social benefits by reallocating goods from low-valued to high-valued users but it’s not obvious that the foresighted people are the ones with low-demand so I think that benefit is likely to be small in this context.  In addition, it’s much easier for a firm to monopolize restaurant reservations than concert tickets and a monpolist seller of reservations has an incentive to keep some reservations off the market thereby leeching from both the customer and the restaurant.

As in other contexts, it it catches on this will encourage restaurants to sell their own reservations this would be better for restaurants than letting WR get the profits but for reasons that are somewhat puzzling it is evidently worse for restaurants than their current method of allocation.

Thanks to Courtney Knapp for the pointer.

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