One of my students wrote a very interesting paper about his experience working in a music venue. When the owners raised the price, demand remained constant, but tips fell, leaving customers out of pocket costs relatively constant.
Here is the paper.econ389.doc
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It’s an interesting observation. Shows consumers to be rational, if not particularly generous.
I think it also comports well with what we can see of consumer behavior in the past few months as gas prices rose — That is, consumers want to spend the same amount of money and they have (very little) choice about what they spend on gas. Somebody else gets dinged — like the waiters, waitresses and Wal-Mart….
Yes, well I hope very much that the student understood that customers add the tip to the menu price to calculate the cost. That is, given the nature of the restaurant, its menu price can be inelastic.
If the paper was meant to underline the miscarriage in social justice (fairness) that separating tips from the menu price of a meal, then so much the better.
In other countries, the tip is included in the price of the meal (at 15% in France). And, if you leave a tip, it should be done because the person serving did go out of their way in terms of personalized service. (Which is somewhat rare, but can happen.)
Why do it this way? Because the server is a hired professional. The service is to serve food. They should be paid fairly for this service. The tip is not an inherent part of the service, but a gratification.
Bringing the food with a smile, or a growl, either way, is just part of the service – unless of course the owner would like us to all go and fetch the food in the kitchen.
In which case, we can expect lower buffet prices. And, to give no gratification. N’est-ce pas?