Why Do Restaurants Decline Over Time?

A blog about business and economics.
April 16 2012 2:31 PM

Why Do Restaurants Decline Over Time?

Tyler Cowen's An Economist Gets Lunch is a delight to read and the point that at a nice restaurant you should order the menu item that seems weirdest and least-appetizing is well worth the price of admission. Meals at nice restaurants are very expensive relative to books, and every little detail you can glean about how to maximize your experience is money well-spent. That said, despite the title and Cowen's profession this is much more a foodie book than a book about the economics of the food industry. Which is too bad, because I'd actually like to hear a wonkier take on some of these claims. Take this for example (excerpted in the Atlantic):

I also start to worry if many women in a restaurant are beautiful in a trendy or stylish way. The point is not that beautiful women have bad taste in food. Instead, the problem is that they will attract a lot of men to the restaurant, whether or not the place serves excellent food. And that allows the restaurant to cut back on the quality of the food.
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This is a causal claim rather than a signaling one. The argument is that the presence of beautiful women in a restaurant per se reduces food quality because proximity-to-beautiful-women externalities let restauranteurs get away with lower quality food. That's not the kind of thing I'm accustomed to reading from economists and especially not from libertarian economists. Would regulations mandating uncomfortable chairs improve the quality of restaurant food? To my mind the more plausible model is that a positive shock to the non-culinary desirability of a restaurant would lead it to become more expensive, not make the food worse. 

I was particularly struck by this because he applies it as an explanation of the general phenomenon of restaurant decline, which I think is better explained by a very different model. Imagine some diners are, by temperament, venturesome while others are regulars. Over the long term, the best business strategy is to appeal to regulars since they offer a stable client base. But when a restaurant is new, it by definition lacks regulars and needs to appeal to venturesome diners both to get an initial wave of customers and also to attract "buzz" and get the temperamental regulars in the door. Over time, a successful restaurant will attempt to switch and become more a place for regulars, which means that venturesome diners will come to like it less. At the same time, alienating venturesome foodies is very low cost because being venturesome they would perceive their own growing familiarity with the food as declining quality one way or the other. One reason venturesome foodies like Cowen particularly enjoy very "authentic" "ethnic" restaurants is that what counts as comfort food for the Annandale Korean community (thus ensuring the existence of a sustainable business model) counts as venturesome dining for the mainstream American diner.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

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