Misery loves company: social influence and the supply/pricing decision of a popular restaurant

J. Atsu Amegashie
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J. Atsu Amegashie: Department of Economics, University of Guelph, http://www.uoguelph.ca/~jamegash

Discussion Papers from Department of Economics, Simon Fraser University

Abstract: In a model with social influence, Becker (1991) offers an explanation for why popular restaurants with excess demand do not raise their prices. He also offers an explanation for why such restaurants do not increase supply but admits his explanation may be weak. Becker does not provide a formal analysis of why supply is not increased. In this paper, I present a formal analysis of Becker's argument based on a different kind of social influence. I also offer an alternative explanation of why some restaurants are popular and others are not. Finally, while Becker (1991) includes market demand and the gap between market demand and supply as separate arguements in the customers' demand function to explan why supply and price are not increased. I only include the gap between demand and supply in the customers' utility function to explain both puzzles.

Keywords: cost of failure; excess demand; social influence (search for similar items in EconPapers)
Date: 2000, Revised 2000-09-14
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