Today’s New York Times has an interesting article on restaurant reservations (Julia Moskin, “Getting a Good Table by Flicking an App, Not Greasing a Palm,” Saturday, June 14, p. A1, As the title suggests, there are now various apps and online services that obtain hot restaurant reservations and then sell them to willing buyers. This process of course creates welfare gains for patrons who prefer paying to waiting in line (either physically or on endless telephone calls and redials). It can also create welfare gains for the restaurants themselves, both by reducing costly no-shows and sometimes by sharing in the revenue from the sale of the reservation. It is another example of the gains that can be realized by reducing transactions costs by using the internet and its progeny.
Let’s be clear about the gains. Reservations at a restaurant are worth more at some times of the week (Saturday night) than at other times (Wednesday noon.) Restaurants capitalize on some of these differences – cheaper lunch menus are standard. But in general restaurants have not charged more for Friday or Saturday nights than for other days, probably because of high transactions costs of such differential pricing. These new services allow differential pricing by day of the week and other factors leading to different demand. This differential pricing is in the form of a fixed charge for reservations. If part of the premium goes to the restaurant itself, then the restaurant can increase revenue without changing menu prices. Ultimately this will lead either to increased supply of high end restaurants or to reduced menu prices, or likely some combination. Diners will benefit from reduced prices or increased availability, and restaurants will gain as well. There is an efficiency gain from saving the time wasted by diners in waiting for seats or reservations. Part of the gains will go to those developing the apps, as a reward for their efforts.
Much of my recent writing has been about the dislike of markets, including an article (Folk Economics), my Presidential Address to the Southern Economic Association, and a Wall Street Journal op-ed. In the case of reservation apps, the dislike probably comes from a variant of the zero-sum fallacy – the view that new institutions redistribute money and the ignoring of real benefits created for all parties. But it is particularly sad that even successful entrepreneurs – the founders and owners of successful restaurants –do not understand the benefits from efficient institutional arrangements.
Resistance to this practice may be rooted in perceptions of social class or rank. In other words, these tools enable those with greater means to buy their way to the head of the line. Now, we tolerate forms of this all the time, such as first class seating on airliners, and higher prices for the best seats at concerts, but for some, this may be one instance too many.
This was the prompt, I think, to an identify-the-fallacy question on the LSAT a few years back.
But I wouldn’t trust him — he got his JD via night school.