Restaurant Wines: Bottle Margins and the By-the-Glass Option

Abstract

AbstractUsing a sample of New York City restaurants, we examine the relationship between a wine's bottle margin and whether the restaurant offers that same wine by the glass. We find that restaurants offer less expensive wines by the glass but set higher margins on these bottles than for similar wines offered only in bottles. Overall, offering wine by the glass is associated with a 5.0% increase in the bottle price and a 12.2% increase in the bottle margin. We find similar results for retail and wholesale markups of wine bottles. Our results offer evidence that settles a theoretical ambiguity in the menu-pricing literature (Anderson and Dana, 2009) about whether to raise or lower the price of a high-quantity package when introducing a low-quantity package of a good, as it applies to restaurant wine pricing. (JEL Classifications: L11, L83)