The Caffé Nero outlet in London I visited recently has different prices for take-out and in-store cups of coffee — £1.65 for take-out, £1.75 for in-store.
Given the costs of space for tables to sit at, and the need to own and wash cups and saucers, the price difference must be way too small to make this cost-based price discrimination. But it can’t be demand-based price discrimination either — I don’t see why the demand elasticity should be lower for in-store than for take-out. My guess is that it is cost-based in part, but that the difficulty in separating the two markets leads to the small price difference. The woman sitting at the next table is drinking coffee out of a take-away cup, having clearly paid the lower price, but enjoying the in-store ambience (and free Wifi). I think it just doesn’t pay for the baristas to police table usage, so that knowledgeable customers pay the lower price — whereas a gullible American like me pays the higher price!
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I was also under the impression this was to do with VAT rules.
Or maybe you’ll just pay more for a real cup.
Also, the small differential may take into account the cost of paper cups and lids, which is why it’s smaller than you seem to think it should be.
A girl where I work got taken to lunch at a nearby Pret a Manger. The counter staff twice asked her companion if they were going to eat in or take out. They paid the take out price but then sat down – at which point they were asked to leave. Talking about it back at work, the general consensus was that VAT is paid on food eaten in. Given the price differential, I don’t this can be the case so I tried checking on the government website covering such regulations. I gave up as I don’t have 2 hours to wade through the the various clauses. But I’ll ask next time I’m in Pret and let you know.
I’m impressed that there’s an economics professor who remains unaware of the baroque details of VAT. Even an American one….. I should have thought it would be case study #1 in how not to design a tax.
Specifically the UK retains a derogation to charge 0% VAT on most foodstuffs (but not dining out, hence the prices in the photograph: dining out i s a luxury, but “staple” foodstuffs (defined by a legal list) aren’t). That derogation does not apply in places like Germany, where you were recently. Charging 0% VAT is, of course, quite different from not charging VAT.
VAT is also the reason that the UK is the only country in the world where the difference between a chocolate covered cake (staple) and a chocolate covered biscuit (luxury) has legal and economic significance.
If the price without VAT were 1.65, any VAT charged thereon would be 0.33.
If the price inclusive of VAT were 1.75, the amount of VAT therein would be 0.29.
I am sure that H.M Revenue and Customs could be persuaded to support more test purchases, or perhaps even a raid. (Americans should note that firearms are not worn.)
Please note that the data are imprecise. The VAT rate increased to 20% on 4 January 2011.
It’s not necessarily true that the woman paid the “out” price because she had an out cup. In Ohio, we pay tax on eat-in but not eat-out, so when they ask me “for here or to go,” I tell them, “here, but in a to-go cup please.” I like having the lid!
It is the same here in the local coffee shop in San Francisco. If you have your coffee in a real cup in the store then you pay sales tax. If you have it to go (or even if you get it in a to-go cup and then sit down), no tax.
umm… am i the only one to notice that the price for a small takeout tea is the highest here and that the larger sizes for both takeout and dine-in are lower?
it looks like the pricing structure is flawed as a whole, not just item-by-item as hamermesh identified…
never attribute to malice what can be attributed to stupidity…