The McRib is back.
People wonder though, why McDonald’s doesn’t just leave it on the menu. The reason might be how we perceive that extra bite.
Have you ever seen one of those newspaper devices where you put your money in and the top opens to reveal 10 or so NY Times? People, though, take only one and snap the lid shut. Logically, we take no more than a single paper because the second one has little usefulness. Or, using marginal analysis, an economist would say that the marginal utility diminished. The second newspaper had much less usefulness than the first one.
For the McRib, one McDonald’s franchisee explains that when the McRib first returns, he sells close to 200 a day. However, by the end of the promotion, anticipation plummets and his daily McRib sales drop to fewer than 50. In other words, similar to that second copy of the NY Times, McRibs buyers are displaying diminishing marginal utility. After their first sandwich, they rarely return for more. Then though, if McDonald’s delays the McRib’s return, excitement again builds as consumers look forward to their first bite. This year, they said the McRib would return during October and then the date was postponed to December 17.
Sources and Resources: As Freakonomics economist Stephen Dubner explains it, McDonald’s just has to wait long enough for him to forget how bad it is. Here, a great analysis of McDonald’s strategy says it is all about arbitrage that is based on hog prices. Also, you might enjoy ths Businessinsider slide show of “11 Amazing McRib Facts” and this NPR interview of the McRib’s inventor. For example, the McRib sandwich contains 70 ingredients.
The year is 2008. Icelandic banks crash. Canadian lobster processors lose their financing.
The result? Demand from Canadian processors for Maine’s lobster harvest decreases.
Meanwhile, on the supply side, the lobster population is soaring. Conservation rules that established maximum and minimum weights meant fewer lobsters were harvested. In addition, lobster predators like cod and striped bass were being overfished and South American warm-water lobster tails and a bumper Canadian lobster crop entered the market.
You can see that this is a classic demand and supply story. On a graph, decreasing demand shifts the downward sloping demand curve to the left while more supply means the upward sloping supply curve moves to the right. The result? Price plummets.
Specifically, during 2012, the price of lobster in Maine at the dock more than halved from $5 a pound to close to $2.00. And, like the 1930s when Iowa farmers burned their corn crop because the price was too low (and the countryside smelled like popcorn, really, from this source), daily fishing trips diminished. The cost of fuel and bait would exceed the price of the catch.
Still one more financial term: Arbitrage. Seeing how cheap the Maine lobsters were, NYC lobster roll purveyors are driving them down, charging $9 a pound for the lobster and $14 for the lobster roll according to NY Magazine.
For an article about the Maine lobster glut and its impact on NY lobster rolls, this NY Magazine article is wonderful. More serious, these Herald Business and Washington Post articles also describe the plight of Maine’s lobster fishermen.
Posted by: adminEcon
Tags: arbitrage, Canadian lobster processors, conservation, demand, Icelandic bank failures, licensing, lobster markets, lobster price decreases, lobster roll, Maine lobster glut, NY Magazine, supply