The Take Out Paradox

Byran has an interesting conversation on why there are so few high-end take out places. In the end he concludes

Dine-in patrons provide an important advertising benefit for restaurant owners that dine-in patrons do not. If you see a restaurant empty during peak times, you infer that it's no good; if you see a restaurant full during off-peak times, you infer that it's excellent.

As a result, restaurants are willing to give a price break to dine-in customers to encourage them to sit down and serve as human billboards. Or in other words, dine-in customers actually double as covert employees, whose job it is to advertise the restaurant. Their implicit pay roughly matches the extra cost of the dine-in experience, bringing it into parity with the cost of take-out.

I like the general theme but I think the advertising concept is weak.

What I do think is happening is that there is an interactions based effect. People prefer to go to a restaurant where there are lots of people in part because it is more exciting but for any number of reasons.

Thus the more people you can get into the restaurant the more will want to come. Since their are high fixed costs it pays to subsidize the cheapskates who will then draw in the more environmentally sensitive diners.

Indeed, what a restaurant would really like to do is give a price cut to the first X customers. Then charge the rest more.

My guess is that cheaper places do this by varying price on time of day. More expensive places do this by making you wait in line.

The question is why does the restaurant benefit from you waiting in line. That will have to wait till I get back from Boone.