My very first post for this blog was about why for some products – cable TV, museums, Disneyland – you are made to purchase a “bundle” of items (one hundred channels, permission to visit many rooms in the museum, all the rides you can do in a day) rather than being able to buy a la carte (one or two channels, just a ticket to see the abstract expressionists, one ride on Magic Mountain). In the latter two cases it might be just too hard administratively to make it work, but that’s not true of cable, where it is easy and costless for the provider to allow or disallow access to individual channels. Our answer was that it is more profitable for the seller (even absent any administrative costs of checking tickets for each room at the museum or ride at Disneyland) to provide a large package of attractions to all, and charge an “entry fee” that reflects the value customers will place on the bundle as a whole, even if they don’t take advantage of every channel, or room at the museum, or ride at Disneyland.
The topic re-appeared this week when Neil Irwin wrote a piece in the Washington Post bemoaning the trend in DC for restaurants serving “small plates”. Indeed, not just in DC: even my local watering hole in not-all-that-trendy Bloomington has gone for the small. Irwin writes:
Chefs of America: Embrace the entrée. Embrace the challenge of creating a dish that is balanced and enjoyable, arrives at the same time for the entire table and meets the nutritional needs of your customer. The dining experience is not about you and your convenience. It is about creating an enjoyable place where people will come and spend their hard-earned money. The small-plates phenomenon is a fraud, wrought upon all of us.
Big plates are like a “take it or leave it” cable contract, and small plates are like the a’la carte cable pricing schemes. The bundled contract gets some marginal channels to people who wouldn’t otherwise be willing to pay for them if those channels were sold on a stand-alone basis. In the TV context some of us browse reality TV, Farsi news, and women’s roller derby, even if we wouldn’t pay for those transmissions per se. In the restaurant context, the big plate gets some of us to eat more vegetables and munch on more parsley. Who would pay much for coleslaw? Output goes up under many of the most basic scenarios and consumer welfare goes up too. …
Those who have a relatively low marginal value for the add-on items of a meal (vegetables?) will be the ones who eat less under a regime of small plates. How their consumer surplus fares, a priori, is more complex and is not easily settled by theory alone. But, using some typical numbers, very often those who value the vegetables inelastically are worse off under a regime of small plates.
First, one thing that makes a restaurant different from cable TV is that every item on the plate comes with some marginal cost. The Thai-marinated flank steak with Chinese cabbage, fennel and Sriracha BBQ I can get at The Rail does not come with the starch or filler I might get with a “big plate” at another eatery, but those items, though cheap, would still come with some cost to provide (time and space in the kitchen, not just the raw ingredients).
Second, the examples I gave at the top of this post for “bundles” operate on the idea that different customers will rank the items in the bundle differently, and selling as a package is a way to exploit that. But, as Cowen asks, “who would pay much for cole slaw”? Maybe the idea here is that small plates are good for people who want a small meal, without the filler, and should be compared not to cable TV but to the ability to download digital singles rather than purchasing complete albums?
Third, what is interesting is the fact that small-plate restaurants exist. The technology is available to have cable providers enter the market who would sell access to channels on an a la carte basis, but we don’t see them, suggesting that big bundles of channels really are the only sustainable business model. Customers go to places with small plates not just because they are trendy – after all, tapas bars have been around a long time – but because being able to order food in that format is enjoyable and worth paying for.
Irwin makes a fundamental mistake when he says small plate restaurants are all about the advantages to the seller. All those hundreds of thousands of DC interns have the option of going to places with big plates – there must be something in the small plate menu that works for them.