Inefficient incentives and nonprice allocations: Experimental evidence from big‐box restaurants

Sacha Kapoor

doi:10.1111/jems.12346

Abstract

AbstractQueues are puzzling because they are consistent with wasted profit in equilibrium. Standard rationales trace the puzzle to the pricing of goods. This article uses field experimental evidence from large‐scale restaurants to trace the puzzle to the pricing of labor. The customary wage contract in these settings fosters congestion and longer queues because it can encourage workers to emphasize the quality rather than quantity of output. To study this problem, the field experiment pays waiters bonuses for customer volume on days with excess demand, in addition to the tips and hourly wages they customarily receive. The experimental contract shortens queues substantially, generating surplus gains for consumers with no discernible cost in terms of perceived service quality. Workers earn more via the bonuses and because they earn more in tips. Short‐run profits increase by at least 49%. There is no discernible reduction in long‐run profit. The firm reverted to the baseline contract on excess demand days after many months of evidence, even after acknowledging the gains from the experimental contract. The evidence suggests the puzzle may partly be explained by inefficient wage contracting.

Highlights

Why do businesses use queues to allocate goods among consumers? Queues are suggestive of excess demand, where the goods are priced below market clearing levels, and where a capacity constrained business can increase profit by raising prices. Becker (1991) famously identified this situation as puzzling because it fit poorly with conventional profit‐ maximizing pricing models at the time
Queues are puzzling for economists because they are consistent with wasted profit in equilibrium
These rationales almost always trace the presence of queues to some feature of the goods market, such as a consumer preference for goods that are valued by other consumers (Becker, 1991)

Summary

| INTRODUCTION

Why do businesses use queues to allocate goods among consumers? Queues are suggestive of excess demand, where the goods are priced below market clearing levels, and where a capacity constrained business can increase profit by raising prices. Becker (1991) famously identified this situation as puzzling because it fit poorly with conventional profit‐ maximizing pricing models at the time. My preferred specification for the remainder of this section includes binary variables for the performance incentive and tailored standard, fixed effects for the worker, day, week, and season. It excludes inconsequential variables, like days in sample (own and peers). Like days in sample (own and peers) It excludes start times and table fixed effects because they are inconsequential and bad controls, reflecting the direct treatment effects on workers and indirect effects that operate through managerial behavior

Tables and start times

Findings

| CONCLUSION