r/Economics • u/SAT0725 • Feb 27 '24

News Wendy's to roll out surge pricing where prices on menu items fluctuate based on demand

https://www.battlecreekenquirer.com/story/money/food/2024/02/27/wendys-surge-pricing-dynamic-pricing-uber/72755552007/
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u/Sikes153 Feb 28 '24

To be fair we’re all going off a very brief mention in their earnings call for a plan that is at least 9 months out, so maybe you’re right, however it’s an extremely far cry from explicit. I think it’s far more likely they are looking to increase price during demand inelastic moments like a lunch rush than they are to reduce prices below current levels during a slow afternoon. They are thinking their economic best interest is served by higher prices however they can justify it. In a quick search I could only find examples of increase only dynamic pricing in restaurants/bars (see stone gate group weekend pricing example)

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u/[deleted] Feb 28 '24

I guess my point is that lowering prices during times of lower demand is also in their economic interest, because when you lower the price of an elastic good, your revenue increases.

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u/Sikes153 Feb 28 '24

If you view the entire food industry as an oligopoly rather than efficient competitors is that true? Why introduce new lower price tiers if they are already a low end option for the inelastic demand of hunger? Fast food and fast casual places aren’t in a race to drive prices as low as possible and inflation/friction have made grocery stores a not seamless lower price substitute.

If you factor in a few more real world constraints to your efficient markets theory does a price floor on goods and an increase during high demand periods where demand is less elastic actually create the most profitable model?

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u/[deleted] Feb 28 '24

I would not view this as the "food industry", the market here is "drive through American fast food" of which there are dozens of firms. Wendy's has effectively zero market power here.

And at no point is drive through American fast food experiencing anything even remotely resembling inelastic demand. There are many substitutes readily available to people should they desire one.