The economics of wine and lobster

lobster chablis

The past few summers, wholesale lobster prices have plunged lower than the ocean floor. Yet lobster prices in restaurants have remained unaffected, a disconnect I have pondered over many a lobster roll washed down by Chablis or Champagne.

Apparently, James Surowiecki, who writes the New Yorker’s The Financial Page, has also stared down the same disconnect but he has taken it one step farther: he has written this week’s column about it.

In short, he finds that commodity pricing doesn’t apply to lobster since it is entrenched as a luxury good in the food world; cut the price and people may actually be turned off as they think it’s inferior quality. In the world of luxury products, psychology matters more than than the cost of raw materials.

He also notes Simonson and Tversky’s work on context-dependent preferences and choices. They found that if consumers were presented with a low-priced and mid-priced object to choose between, the selections would be split. But if a third, higher-priced object was added to the product mix, then consumers chose the mid-priced item 40% more often.

Lobsternomics has some application to the wine world. If input prices were to fall for high-end grapes, it’s unlikely producers would cut wine prices for the similar psychological reasons (indeed, we saw this with the flash sales after 2008 instead of outright price cuts).

Also, Simonson and Tversky’s work is applicable to wine lists where the mere presence of DRC on a wine list may move more malbec. What do you think about the effect of relative pricing on wine lists (or stores)?

But one way that the law of supply and demand is not repealed in the world of wine is when the cost factors go up. Then, as when hail vastly reduces supply, the relative scarcity forces prices up; whether they fall again remains a matter for empirical research–and consumer psychology.

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6 Responses to “The economics of wine and lobster”


  1. A subject near and dear to my heart, having been in both wholesale and retail wine sales.

    The thing that still spins my head about consumers is their inability to use their heads. There’s no such thing as a sale, no such thing as a bargain, and no such thing as a fair price.

    To understand those no-such-things one must ask: Why would any profit-making venture even consider losing money on a sale?

    The price of items, especially at retail, is in direct proportion to how much the seller can get away with charging based on how little the buyer knows and how dense aspirational thinking can be.


  2. This article is a good reason to look seriously at the lowest-priced wine in a restaurant. Or at a shop you trust…


  3. The flipside would be: what can wine teach lobster fisherman about stratifying markets along quality lines to overcome gluts? Terroir de lobster? AOC Maine?


  4. Thomas-
    “Losing money on a sale” (in this case meaning a transaction, not a ‘sale’ below a higher price) is a relative term. A retailer may have purchased a good from a manufacturer for $30 and put it on the shelf for $50. It sits for two months and isn’t touched. That retailer just incurred 2 additional costs – 2 months of unused shelf space, and $30 in inventory sitting idle for 2 months. In this case, a 40% discount to $30 still represents a loss to the retailer. This issue is compounded with seasonal items – Around early March, any unsold winter jackets are looking like a dicey proposition for a retailer. You think they want to inventory that jacket for the summer, then try to sell last year’s jacket next fall after carrying it on their books for a year?

    There are other examples as well – I can get you a heck of a deal on a LiveStrong exercise bike right now.


  5. I am now thinking about the bottle of Cristal I just had, and how unimpressive I thought it was, yet I thought that I should save the Cristal bottle because it looked impressive. There’s a moral here.


  6. Matthew,

    I worked in men’s clothing part time many years ago and saw the markup on that stuff. I stick with my opinion.


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