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.
The least expensive Super Bowl weekend in Indianapolis might cost close to $6248. That means you purchased a “nosebleed” seat for $2100 from StubHub, your coach airfare from NY or Boston was $1379 instead of the usual $400, and you are paying $1840 for a 2 night stay in an airport hotel that typically charges $47 a room. For your car, Hertz shifted its normal weekend rate from $102.42 to $429.89 and a parking spot near the game might cost $499.
$2100 (tickets)+$1379 (airfare)+$1840 (hotel)+$430 (car) +$499 (parking)=$6248
Other Super Bowl economics? The National Chicken Council reported that on Super Bowl Sunday last year, we consumed more than 1.24 billion chicken wings. Likewise, according to The Big Three (Pizza Hut, Papa John’s and Dominos), we doubled our pizza orders.
Do Super Bowl cities benefit from a surge in spending? Maybe. It all depends on several questions.
- Leakage: Does the money go elsewhere? Does the money spent at Pizza Hut and elsewhere go to a local owner or to the national firm?
- Crowding out: If locals stay home, will certain retailers experience less business?
- Money transferred: Would some of the money spent for Super Bowl goods and services have been spent elsewhere anyhow?
- Investment: How much money did the city spend to prepare for the event?
The Economic Lesson
The blip in prices is perfectly illustrated on demand and supply graphs. Perhaps all you need for the supply side is a shift in the curve’s position and also a change in its shape. The shift is upward and the curve becomes horizontal at the new, high price. Meanwhile, you have a demand curve reflecting individuals and businesses that are willing and able to spend astronomical dollars. Combine the two, equilibrium soars, and as a result, a parking space can cost $499.
An Economic Question: How would you draw a supply and demand graph illustrating skyrocketing Super Bowl prices?
Expressing concern about a proposed FDA calorie-posting rule, Domino’s says it would have to list 34 million different kinds of pizzas. Really.
This Bloomberg video explains their position. Using Domino’s “Cal-O-Meter” as a source, they show an image of a plain cheese 14″ pizza (2,320 calories) that is accompanied by a yellow “sausage” arrow (480 calories) and a gray Mushroom arrow (40 calories). You get the picture. Peppers? Pineapple? Onions? Veggies? There are a lot of possibilities.
The Food and Drug Administration’s (FDA) proposed mandate applies to restaurants, bakeries, coffee shops, grocery stores, and convenience stores that are chains. Defining a chain as 20 stores or more, the FDA has not yet implemented its rule. Vending machines are included but not movie theaters and airlines.
The Economic Lesson
The menu-labeling rule was mandated by The Affordable Care Act that was passed during March 2010. Assessing its wisdom, you could use an opportunity cost approach. The opportunity cost of a decision is the alternative that you rejected. (Choosing is refusing.) Just decide what alternative choice you are sacrificing and then list the benefits of that alternative that you would forgo. Is your choice worth the sacrifice?
An Economic Question: Using cost/benefit analysis as your approach, with which of the following do you agree?
a. This article in the Sacramento Examiner says the FDA has not gone far enough. They believe ingredients should also be listed.
b. The FDA has gone too far. The new rule will negatively affect corporate productivity.
If you would like to submit an opinion to the FDA, go to regulations.gov.