Saturday, March 31, 2012

NYC Pizza War Drops Price of a Slice to 75 Cents

As a consumer, you gotta love the intense "cut-throat" competition on the Avenue of the Americas in midtown Manhattan that has brought the price for a slice of pizza down from $1.50 to now only 75-cents, and it might even go lower.  One of the owners says "We may go to 50 cents," and a rival says "We might go to free pizza soon."  Midtown Manhattan is experiencing significant food price deflation.... at least for pizza.....

Read the NY Times article here "In Manhattan Pizza War, Price of Slice Keeps Dropping."

HT: Jonah Goldberg

25 Comments:

At 3/31/2012 10:30 AM, Blogger PeakTrader said...

The article suggests this is an example of "predatory pricing," to drive competitors out of the market.

 
At 3/31/2012 10:39 AM, Blogger Glaucon said...

@PeakTrader

Isn't that what's going on?

Mr. Kumar said, according to the article, "I want to hit him [his business rival]. I want to beat him.”

Sounds pretty predatory.

 
At 3/31/2012 11:29 AM, Blogger juandos said...

"The article suggests this is an example of "predatory pricing," to drive competitors out of the market"...

Well PT it is a New York Times article...:-)

 
At 3/31/2012 11:32 AM, Blogger jorod said...

Gotta love competition.

 
At 3/31/2012 11:32 AM, Blogger Buddy R Pacifico said...

"We might go to free pizza soon."

This strategy would seem to be the quickest to end the pizza slice war.

Food price deflation would cease, because there would be no record of any sale.

If there was no record of a sale then no sales tax would be paid.

No sales tax being paid would bring in the authorities, and the war would be declared illegal.

Also, the dangerous sandwich board signs, that advertise prices on the sidewalk, would be banned.

War over -- minimum price => buck per slice in Manhattan.

As a result of this devastating war, a commission would be established to incorporate pizzaria medallions similar to NY taxicabs.

:>)

 
At 3/31/2012 11:58 AM, Blogger PeakTrader said...

Jorod says: "Gotta love competition."

Consumers get everything and no one else gets any dough :)

 
At 3/31/2012 12:09 PM, Blogger Ron H. said...

Buddy: "As a result of this devastating war, a commission would be established to incorporate pizzaria medallions similar to NY taxicabs."

Well of course! If thousands of new pizzarias open that offer free pizza, consumers will be harmed.

Perhaps a price support on pizza would be better. Then we could all pay for the free pizza.

 
At 3/31/2012 12:43 PM, OpenID moneyjihad said...

If gas prices fell as much, would we be hearing about "predatory pricing," or would we be hearing about some phantom "achievement" of the Obama administration?

 
At 3/31/2012 12:58 PM, Blogger Buddy R Pacifico said...

What is the range of Pizza slice prices in Manhattan?

Near zero to $125 per slice.

 
At 3/31/2012 3:13 PM, Blogger Larry G said...

I'd be wary of a suddenly declining cat or rodent population if I were contemplating buying some of that "cheap" pizza.

they gotta cut costs somehow, right?

;-)

 
At 3/31/2012 4:28 PM, Blogger esoltas said...

This is a really great example of Betrand competition -- firms compete based on setting a price for a homogenous product. The model's predictions are borne out in that there should a "price war" until prices fall to marginal cost, and if marginal costs aren't the same, then the high-marginal cost producers are going to fail, and eventually the price of a slice of pizza will stabilize at the limit price. It's a great day to be a pizza eater in NYC, obviously, given the consumer surplus.

- Evan Soltas
esoltas.blogspot.com

 
At 3/31/2012 6:22 PM, Blogger PeakTrader said...

If there were only two pizza businesses, and one had 11 stores, while the other had one store, the larger business is likely in a stronger position to drive-out the small business, because it can absorb losses at one store through its other 10 stores.

Then the large store could charge a much higher price, i.e. well above marginal cost.

 
At 3/31/2012 7:15 PM, Blogger Ron H. said...

This comment has been removed by the author.

 
At 3/31/2012 7:23 PM, Blogger Don Culo said...

I'm glad pizza is a healty food, otherwise we would have the same obesity problems as the French, who eat to much proceesed high calorie food.

 
At 3/31/2012 7:33 PM, Blogger Ron H. said...

Peak: "If there were only two pizza businesses, and one had 11 stores, while the other had one store, the larger business is likely in a stronger position to drive-out the small business, because it can absorb losses at one store through its other 10 stores.

Then the large store could charge a much higher price, i.e. well above marginal cost."

Yes, classic monopoly theory, but wouldn't the higher price attract competitors? Perhaps someone who had bought equipment at the bankruptcy sale of the former small business owner?

Meanwhile pizza eaters prosper.

 
At 3/31/2012 7:35 PM, Blogger Ron H. said...

Peak: "The article suggests this is an example of "predatory pricing," to drive competitors out of the market"

Isn't that the very essence of a competitive market?

 
At 3/31/2012 7:39 PM, Blogger Ron H. said...

Don Culo: "I'm glad pizza is a healty food, otherwise we would have the same obesity problems as the French, who eat to much proceesed high calorie food."

Exactly right. In fact I read an article explaining that since there are no calories in pizza, it's necessary to drink large quantities of beer with it to get sufficient calories.

 
At 3/31/2012 8:14 PM, Blogger AIG said...

I think there should be a minimum price for pizza. Peak can back me up here.

I read this report of a study done by this research organization showing that the average pizza-place owner, seeking to rent a 2-bedroom apartment in San Francisco, would need to sell as many as 75,000 slices of pizza per day (if he/she were to spend 30% of the income on rent, 30% on birth control, and 30% on iPhone 4S unlimited data plans)

Pizza-place owners deserve a decent living. Lets give them a living price for their pizza.

High five Peak!

 
At 3/31/2012 8:23 PM, Blogger PeakTrader said...

Ron says: "Wouldn't the higher price attract competitors?...Meanwhile pizza eaters prosper."

A "competitor" could invest a lot of money and then go out of business.

Or the large pizza business may expand into the failed pizza business.

The large pizza business may more than make up for the cheap pizza later. So, it's possible, consumers will be worse off.

 
At 3/31/2012 8:27 PM, Blogger PeakTrader said...

AIG says: "I think there should be a minimum price for pizza. Peak can back me up here."

There should be a minimum price for pizza, i.e. where price equals marginal cost, or the Nash equilibrium.

 
At 3/31/2012 8:28 PM, Blogger AIG said...

So, it's possible, consumers will be worse off.

That's ridiculous. This is NYC. You can close your eyes, walk in any random direction, and within 100 ft hit your nose on the door of a pizza place. Whatever happens to individual pizza places, the consumers will barely notice.

But you're right, this exploitation of pizza-place owners ought to stop!

 
At 3/31/2012 8:36 PM, Blogger AIG said...

There should be a minimum price for pizza, i.e. where price equals marginal cost

All the more argument for a minimum pizza price! I knew you'd agree with me.

 
At 4/01/2012 2:29 AM, Blogger Ron H. said...

Peak: "A "competitor" could invest a lot of money and then go out of business."

Do you mean no competitor can ever succeed against an existing monopoly?

The monopoly must suffer losses to get rid of all existing competitors, then as soon as they raise prices to reap the rewards of being a monopoly and recover their losses, enterprising competitors will pop up, no?

There are zillions of pizza places in business today, and certainly no monopoly. How can that be if you are correct?

 
At 4/01/2012 2:46 AM, Blogger Ron H. said...

Peak: "There should be a minimum price for pizza, i.e. where price equals marginal cost"

And there would be if pizza were a commodity, but pizza sellers try very hard to distinguish their product from the competition by appealing to the vast range of pizza consumers tastes.

This leads to a condition known to economists as "too damned many pizza restaurants", as AIG has pointed out is the case in NYC, and harms consumers by forcing them to pay nothing, or almost nothing, for pizza.

A medallion system, which has worked so well with taxis, would be just the ticket. After all, city fathers are best able to determine how many of everything there should be.

Pizza, like educating our children, is too important to leave to the free market.

 
At 4/01/2012 2:56 AM, Blogger Ron H. said...

"But you're right, this exploitation of pizza-place owners ought to stop!"

And it should be clear that it's penny pinching consumers that are doing the exploiting. Just because a Pizza-place owner is willing to accept a ridiculously low price for a slice of pizza doesn't mean unscrupulous pizza eaters should force them to do so.

Give the poor guy a buck a slice, at least, just as we want him to pay his workers a minimum of $10/hr.

 

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