In Pursuit of Understanding Markups in Restaurant Services Prices

In Pursuit of Understanding Markups in Restaurant Services Prices

Title:

 In Pursuit of Understanding Markups in Restaurant Services Prices

Number:

16/02

Author(s):

Mustafa Utku Özmen

Language:

English

Date:

January 2016

Abstract:

Measuring markups in the services sector is a difficult task. For the case of restaurants, although the sales price is observed, cost of the product served is unobserved. Here we employ an intuitive framework and focus specifically on markups on soft drinks. This is reasonable in two ways: First, there is no quality bias as we consider the relative price of canned soft drinks served at restaurants compared to those sold in supermarkets. Second, beverages are considered as an important source of profit for restaurants. We analyze the determinants of markups on soft drinks in restaurants in Turkey over the 2006-2014 period. Results suggest that current demand and cyclical conditions (net minimum wage, output gap), major cost items (food and energy prices, exchange rate) and economic uncertainty (measured as exchange rate volatility) significantly affect markups. This identification strategy enables the detection of relevant factors which may not be possible to identify otherwise.

Keywords:

Restaurant services, Markup, Minimum wage, Turkey

JEL Codes:

C22; D22; E31; L11

In Pursuit of Understanding Markups in Restaurant Services Prices
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