Coffee in Paris

Next time there’s an offer on Eurostar perhaps… Phillip describes having to choose between scathing looks from Parisians when asking for a coffee to go, or scathing looks from Parisians when he patronises a chain coffee house. The economics of coffee featured in Tim Harford’s book “The Undercover Economist“, which I read recently. A real eye opener and very accessible!

He uses the price of a cup of coffee to illustrate some significant economic, psychological and marketing principles. E.g. whereas in London you have the option of a premium coffee (at a price of your choosing) from a high street chain, there are also ample opportunities for finding a cheaper coffee close by, if you’re prepared to spend a few minutes searching or know where to look.

This illustrates David Ricardo’s Law of Rent, amongst other economic principles. Basically the rent is higher on the high street as the “land” is more productive, i.e. there are more people passing and more opportunities for sales. But because the rent is high, the price of coffee is high. On the other hand, people rushing down the high street are less price sensitive and therefore more willing to pay the higher price. Off the high street (the marginal “land”) the customers are more likely to be regulars, and more price sensitive. Therefore your coffee will be cheaper.

What seems strange about Phillip’s experience is that culturally the Parisians seem to be passionate about “cafe culture”, that they’re willing to forgo the additional profit that customers like Phillip would bring. I guess the loss of prestige (and therefore regular custom) is just not acceptable at the moment, but I would have thought it’ll happen one day, driven by the two extremities.

There are other revelations and illustrations (if you’re not involved in marketing or economics) that make the book great fun. See also Freakonomics and the Freakonomics blog.

(this is also my first go at a trackback, hope it works!)


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About loidon

Technical support in an IT-centric academic department. Jack of all trades, master of none. Able to bluff on most subjects!

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