Pizza Economics

Pizza is MasterPo’s #1 food group!

Although MasterPo is not Italian there may be some long lost ancestry to account for it.

Nevertheless, pizza is definitely a staple of MasterPo’s diet.

Pizza also helps illustrate very well the fundamental rules of economics and the reality of business.

In MasterPo’s neighborhood there are 3 pizzerias. MasterPo and Mrs. MasterPo usually order pizza from pizzeria #1. That establishment makes the best pizza in the neighborhood. Sometimes instead of pizza the order will be for hot heros, and occasionally for a full take-out dinner entrée.

Unfortunately pizzeria #1 closes early so if life’s events are running late MasterPo and Mrs. MasterPo will order pizza for pizzeria #2 that remains open a bit later. Their pizza is pretty good too. Haven’t tried their hot hero’s or dinners, probably won’t, but is likely decent.

Pizzeria #3 MasterPo doesn’t like. Early when MasterPo’s family moved into the neighborhood MasterPo went into the pizzeria, tried the pizza, and it was not at all to MasterPo’s liking.

Maybe it was just a bad day?
Maybe under new ownership the pizza has improved?

Nevertheless, once bitten makes for twice shy so MasterPo will not order pizza from pizzeria #3.

So to summarize:

- 90% of MasterPo’s pizza business and 100% of hot hero’s and take-out dinner business goes to pizzeria #1.
- 10% of the pizza business and none of the heros/dinners business goes to pizzeria #2.
- None of either business goes to pizzeria #3.

But nothing remains forever…

A few months ago a new pizzeria opened in the area.

Very risky business move in MasterPo’s opinion. While it does have very good location on a busy main road, being in such close proximity to three other established pizzerias is gutsy to say the least.

In the fullness of time on day MasterPo and Mrs. MasterPo decided to order a pizza for dinner and chose to try the new place. The pie came and it was good. At least as good as pizza from pizzeria #1, certainly better than from pizzeria #2 and infinitely better than MasterPo’s sampling of pizza from pizzeria #3!

Some time later MasterPo and Mrs. MasterPo decided to try their dinners as well. Wow! The portions were noticeably larger than from pizzeria #1 and the food came with side salad and fresh garlic knots. Truly a hearty meal! And yes, the food tested great too.

So now the rankings stand as follows:

- The new pizzeria is tied with pizzeria #1 for the MasterPo’s pizza business (50/50 which is ordered from) but becomes pizzeria #1 by receiving 100% of MasterPo’s take-out dinner business (unless there is some reason not to order from them or they aren’t available).
- Old pizzeria #1 slips to pizzeria #2 for dinners.
- Old pizzeria #2 drops to pizzeria #3 for pizza.
- Old pizzeria #3 falls off the radar altogether!

And judging from the amount of traffic in/out of the new pizzeria MasterPo has observed MasterPo’s family aren’t the only ones who like this new place!

From an economic point of view consider what this means.

The new pizzeria has taken away a significant amount of business from at least two other local establishments. This includes formerly repeat customers such as MasterPo’s family. he new pizzeria has also “raised the bar” in terms of expectations for portion size and the completeness of a meal.

And, not to be overlooked, the price (cost to the consumer) is also very much on par with market rates for similar food in the area (i.e. the price is very competitive!).

Who knows – some day one of those other pizzerias may close up, unable to compete. If that happens there are likely other factors involved but MasterPo is sure the competition from this new pizzeria didn’t help matters much.

But from a consumer’s point of view it’s a win-win scenario: MasterPo has more choices (variety) to select from, very competitive pricing, and greater value for the cost spent.

This pizza analogy holds true in all cases. Someone (i.e. business) comes along that can offer more items and better prices – that appeals to the consumer. It may in the end cause other businesses in the area to scale back or even close but it’s the consumer that benefits.

The news these days rants about this business closing because it can’t compete against that business over there. MasterPo isn’t so cold hearted as not to realize the loss of jobs and income when a business closes. And regular readers of MasterPo know how MasterPo feels about protecting a failing enterprise just because (i.e. no too-big-to-fail).

Nevertheless, this is reality. When someone comes along that can provide better products or services at the same or lesser price that is an advancement in the state of the art for the economy. It is a necessary and healthy growth of economics and society. Any attempt at artificially restricting such changes or artificially supporting the less competitive enterprises at best is doomed to failure, at worse hurts and retards the economy.

Otherwise we’d still have stage coaches running today.

And they wouldn’t be serving pizza!