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A Pizza Peace

Sep 9, 2012 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Economic Humor, Thinking Economically, Uncategorized • 155 Views    No Comments

New York’s pizza price war has ended.

During April, we could buy a 75-cent slice of pizza in midtown Manhattan. The brief price war that brought the price down from $1.50 to $1.00 to $.79 to $.75 has ended. As it unfolded, one owner said, “I’m thinking, God help me.” Another was researching NYC pricing laws for pizza to see if 75 cents a slice was illegal. Still though, they said price could slide to 50 cents and less.

Yesterday, I read that after the owners were seen talking on the street, the slice price at both establishments rose to $1– a 33 1/3% increase. Such a relatively large price pop seems not to have dampened consumer demand. As an antitrust violation (2 owners probably price colluding), it seems also not to have attracted federal or state authorities.

The impact on pizza eaters can be explained by the economic concept of elasticity. Related to how much a price change affects the quantity that we demand, price elasticity of demand varies. If a car or a house or even a pint of strawberries goes up by 1/3 then we might respond because the items take a huge chunk of our paycheck or are luxuries that can be bypassed. By contrast, for low priced items and necessities, when price goes up by a large percent, our buying behavior remains relatively constant.

Perhaps a slice of pizza, being inexpensive and a necessity is in the inelastic category.

Called “A Lot of Pizza for a Little Dough,” this Bloomberg news video gives you a firsthand view of the fight. Then, you can read more about this pizza price war at econlife and in these NY Times before and after articles.

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