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Menu Pricing: An Experimental Approach

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  • Kiefer, Nicholas M
  • Kelly, Thomas J
  • Burdett, Kenneth

Abstract

Menu-pricing schemes in restaurants are often based primarily on markup-over-cost methods. More sophisticated techniques make use of ideas about consumer demand as well as cost. We propose an experiment for determining the effect of price on the quantity demanded of a menu item. We ran the experiment in a restaurant. The technique is clearly feasible. In our case, the demand was found to be quite inelastic over the price range considered, indicating that the restaurateur had much more flexibility in pricing than he thought a priori. We caution that our focus is on an elasticity of substitution among menu items. Our results do not address the effects of across-the-board price increases.

Suggested Citation

  • Kiefer, Nicholas M & Kelly, Thomas J & Burdett, Kenneth, 1994. "Menu Pricing: An Experimental Approach," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(3), pages 329-337, July.
    • Handle: RePEc:bes:jnlbes:v:12:y:1994:i:3:p:329-37
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    Cited by:

    1. Natarajan, Ranjini & McCulloch, Charles E. & Kiefer, Nicholas M., 2000. "A Monte Carlo EM method for estimating multinomial probit models," Computational Statistics & Data Analysis, Elsevier, vol. 34(1), pages 33-50, July.
    2. Durham, Catherine A. & Pardoe, Iain & Vega-H, Esteban, 2004. "A Methodology for Evaluating How Product Characteristics Impact Choice in Retail Settings with Many Zero Observations: An Application to Restaurant Wine Purchase," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 29(1), pages 1-20, April.
    3. Vassalotti, Amy, 2005. "How Will An Increase From $6.75 to $7.75 in the California Minimum Wage Impact the California Economy?," Institute for Research on Labor and Employment, Working Paper Series qt299581z3, Institute of Industrial Relations, UC Berkeley.
    4. Jeannette Wicks-Lim & Mark D. Brenner & Robert Pollin, 2004. "Economic Analysis of the Florida Minimum Wage Proposal," Published Studies ps17, Political Economy Research Institute, University of Massachusetts at Amherst.

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