Just had a great dinner/conversation with a good friend. We went to Jaleo, Jose Andres' place in Gallery Place. It was my 4th or 5th time and is one of my favorites in DC.
One of the things we were discussing was the restaurant business. I know Tyler Cowen was talking about a paper on the restaurant business at one point, but I had a thought. The restaurant industry is as close to perfect competition as it gets. There are many small firms, price takers, none of whom can individually affect the market. There is fairly free entry and exit from the market. People obviously have preferences, but there is always a substitute. Information is fairly easy to obtain regarding prices etc. Trading costs are low. Food profits are nearly zero, especially in fine dining restaurants. We know that the supply curve is maximized because of the high failure rate.
I will write a paper on it at some point.
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