Tyler Cowen's Ethnic Dining Guide

That is the current rage in the DC dining scene, namely that you can more easily order lots of “small plates” rather than a big plate with steak and spinach. Neil Irwin makes the case against that practice here, Matt Yglesias responds and defends small plates.

Neither mentions price discrimination or for that matter does much analysis of price. You will recall Glazer’s Law: “It’s either taxes or price discrimination.” And usually it is price discrimination.

Here is Alex on bundling cable channels as a form of (possibly) welfare-improving price discrimination. Read through that stuff if you don’t already know it, but the punchline is that big plates are like a “take it or leave it” cable contract, and small plates are like the a’la carte cable pricing schemes. The bundled contract gets some marginal channels to people who wouldn’t otherwise be willing to pay for them if those channels were sold on a stand-alone basis. In the TV context some of us browse reality TV, Farsi news, and women’s roller derby, even if we wouldn’t pay for those transmissions per se. In the restaurant context, the big plate gets some of us to eat more vegetables and munch on more parsley. Who would pay much for coleslaw? Output goes up under many of the most basic scenarios and consumer welfare goes up too.

In a more competitive market, as indeed the DC restaurant scene has become, bundling breaks down somewhat. We move toward a system of “small plates.” So the increasing competitiveness is good for consumers but the breakdown of bundling can be bad for them, with indeterminate welfare results, which means either Neil or Matt can be correct (but do lay out the whole story, and never ever ever reason from a plate size change!)

Those who have a relatively low marginal value for the add-on items of a meal (vegetables?) will be the ones who eat less under a regime of small plates. How their consumer surplus fares, a priori, is more complex and is not easily settled by theory alone. But, using some typical numbers, very often those who value the vegetables inelastically are worse off under a regime of small plates.

I wonder whether Neil Irwin or Matt Yglesias likes vegetables more?

Originally posted on Marginal Revolution – click to see comments and suggestions.

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