Decision to raise number of fixtures in the competition by 51% ignores strategy of excess demand and its long-term benefits
The year is 1991. The place, the University of Chicago. The person, Gary Becker, who just over a year later would become a Nobel laureate in economics. In a famous academic paper, he notes: “A popular seafood restaurant in Palo Alto, California, does not take reservations, and every day it has long queues for tables during prime hours. Almost directly across the street is another seafood restaurant with comparable food, slightly higher prices, and similar service and other amenities. Yet this restaurant has many empty seats most of the time.”
The question is why. Why doesn’t the popular restaurant raise prices, which would reduce the queue for seats? Why doesn’t it increase supply (expand capacity) to reduce the excess demand and capitalise on its popularity? The answer is that doing that would probably not be optimal. It might be highly detrimental to the business.
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