The Market-Price Mystery: Lobster Prices Are Collapsing, But Lobster Meals Aren’t Getting Cheaper. Why?

Commentary about business and finance.
Aug. 21 2012 1:41 PM

The Mystery of the Market Price

A bumper crop is pushing lobster prices through the floor, so why aren't restaurants charging less?

A freshly cooked lobster from a pot.
An overabundance of lobsters in Maine has driven wholesale purchase prices to record lows.

Photo by Justin Sullivan/Getty Images.

The Fisherman’s Friend in what passes for downtown Stonington, Maine, is ideally situated for a summertime lobster dinner. The town, at the southern tip of Deer Isle, has a Main Street that runs along the water and is lined with galleries and tourist shops. The town’s working harbor is a place for not only recreational boaters but also commercial fishermen. Nearly atop the harbor is the restaurant, with an indoor dining room and also outdoor seating. You can enjoy the view, the sea breeze, and a lobster dinner, with the crustaceans offered at market price, which turned out to be $20.99 last week when my father and I ate there.

I’d say it was money well-spent, but some unease still set in. After all, it was only a few weeks ago that the New York Times’ Katharine Seelye wrote a Stonington-datelined article about the rock-bottom prices lobstermen were getting for their catch. Indeed, these days the dock price of lobsters is about half of what it was four summers ago when Daniel Gross wrote about cheap Maine lobster for Slate.

The mechanism isn’t precisely understood—people think the anomalously warm temperatures in the Gulf of Maine may have something to do with it—but newly molted lobsters started showing up in coastal waters unusually early this year, and fishermen keep pulling in record harvests. That’s led to a collapse in the wholesale purchase price of lobsters and international tensions as Canadian lobstermen seek to keep Maine lobsters out of Canada’s lobster processing factories. The state’s governor, Paul LePage, dedicated his Aug. 10 radio address to the lobster crisis, calling on Maine to build some lobster processing facilities of its own so as to capture more of the total value of the lobster industry.

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Which brings me to the market-price anomaly. It’s clear that if you walk into a fish store that the price of live lobsters has indeed fallen sharply. But at the restaurants and seafood shacks that dot the coast, prices have fallen only modestly. Instead, the lobstermen’s pain is leading to windfall profits for restaurant owners, fueling dark talk of price fixing in some quarters.

The price of lobster, like the price of anything else, is set in a market. But the market price you pay is fundamentally a price determined by the restaurant market, not the market for lobsters. And the issue is a basic one of capacity and competition.

Think back to the Fisherman’s Friend and its excellent location. Stonington is a great place to visit. But it’s also a very small town. There aren’t very many places to eat. And if it’s a certain kind of coastal Maine seafood dinner experience you’re after, there aren’t any other places in town to go. There’s a little reason to fear losing customers to the boil-at-home option as lobster prices fall but no reason to worry about a nearly identical competitor next door poaching your customers. Nor is there a nearly identical competitor next door whose customers you might hope to poach with a discount.

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