Economics Puzzle

This one has been bugging me for awhile: Why does McDonald's charge 20 cents more for a single cheeseburger than a double cheeseburger?

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I think it depends on the

I think it depends on the location whether they even do that. For example, I don't see that at any McDonald local to me. But from similar things I've seen you might be talking about the "value menu". Normally, the more you buy the less you pay in proportion to what you buy. For example, if there is a 5-piece nuggets and a 10-piece nuggets, usually the 10-piece nuggets costs less than twice the 5-piece nuggets. But when it comes to the value menu, I have on occasion seen this break down: you could pay less by buying two 5-piece than you would have paid by buying one 10-piece, in one case I remember (it was not at a McD but at a BK).

I can only offer theories. One theory is that the company doesn't think it's worth the trouble of forcing all the menu items to be consistent. If, for example, they put the double cheeseburger on the dollar value menu, thereby forcing its price down to a dollar, they don't think it's worth the trouble to then re-price the cheeseburger down to less than a dollar just for the sake of consistency. It's no skin off their noses if nobody buys cheeseburgers. It's not like they'll have a bunch of unsold cheeseburgers sitting around rotting because of the inconsistency. What they have is ingredients, and if all the customers, knowing basic arithmetic, buy only double cheeseburgers, then so be it. One simple way to achieve consistency would be simply to take the cheeseburger off the menu. But why bother? Just leave it on, and if somebody buys a cheeseburger, so much the better.

Another theory is that they don't consider it worth their while to sell anything for less than a dollar (or whatever), because there's a minimum cost on their end just for serving a customer. So if they price the double cheeseburger at a dollar, then at most they would lower the price of the cheeseburger also to a dollar. But then that would put the cheeseburger on the dollar menu as well - so the dollar menu would have both the cheeseburger and the double cheese on the dollar menu. That would just be blatantly strange, because all the dollar menu items are listed right together. The simplest solution, then, is just to leave the cheeseburger alone, selling for its normal higher price.

More generally, I notice that fast food restaurants have good deals on the value menu. Maybe they're not always as blatant as pricing a double cheeseburger lower than a cheeseburger, but if you do a little bit of arithmetic you can see that you're getting a lot of food for your money on some of the value menu items, in comparison with the other items.

There are various reasons why business sell certain items for very low. One reason is that the item is a loss leader. Another reason is that the pricing scheme is effectively price discrimination - retaining the business of the more price-conscious customers while retaining the ability to charge the less price-conscious customers more, by selling the two sets of customers two different sets of items. Tim Harford has argued that Starbucks price discriminates by charging a lot for cheap flavoring, and Steven Landsburg has argued that the expensive popcorn at movie theaters is a form of price discrimination. Landsburg's explanation for how this is possible is that moviegoers go to the movie in groups. This creates enough lack of individual choice that price discrimination can occur. People consume food and drink in groups also, so this explanation might extend to Starbucks and McDonald's.

My guess would be that: If

My guess would be that:

If you make a large quantity of the same type of burger at once, you get a sort of economy of scale, the sort Adam Smith discusses with the manufacture of pins. It pays to pick a high-demand burger and make a whole bunch in one batch, store them, and replenish them when they're running low.

There's room enough under the heat lamp to store a usable quantity of either double cheeseburgers or single cheeseburgers, but not of both. And if you tried to store both, you'd run out of one or the other quickly enough that you'd have to make fresh ones on the fly. Might as well not bother storing them.

Also, single and double cheeseburgers look enough alike, especially wrapped, that the chance of confusing them is too great. It would not be a good thing to accidentally hand the customer the wrong one, especially a single when he wanted a double. Better to store only one kind, and make the other on an as-needed basis.

By offering the double cheeseburger as a one-dollar special, Mc Donalds provokes a lot of customers to buy double cheeseburgers when they might otherwise buy singles. This drives the sales volume up high enough that it pays to have a whole bunch made and ready to hand out to customers.

It also decreases the demand for singles so it's easy enough to make one as needed, and it's not required terribly often. But you can't sell them for less than the doubles, because they're being made as needed, and you lose the economy of scale you realize from making large numbers at once -- about 20ยข + the cost of the extra patty.

If the double cheeseburger

If the double cheeseburger cost double the single cheeseburger, some people would buy two singles getting extra bread. With two sandwiches extra condiments would be used.