Bento Box Or Wasabi (article Written In 2009)

My friend and I went to Bento Box today during our lunch break at LSE between the two hours of Finance lecturing. Friend: "eh? The lunch is now 5.50 pounds? I thought it was 4.95?" Me: "oh, that's why no one is coming here to eat anymore"

Were we right? We did a simplified analysis on the situation. As with all finance problems, we have to first make a few assumptions, and state the facts.

Assumptions: 1) There are only two Japanese restaurants within walking distance from LSE: Wasabi and Bento Box. 2) The distance from LSE to Wasabi, and the distance from LSE to Bento Box is the same. 3) If we ignore the costs, everyone receives the same amount of happiness regardless of whether they are eating the Wasabi lunch set or the Bento Box lunch set. 4) Everyone ONLY eats the lunch set (so they cannot eat sushi, noodles, etc.)

Facts: 1) Bento Box's lunch sets used to be 4.95 pounds each, they are now 5.50 pounds. 2) Wasabi's lunch sets are 4.45 pounds if you order a take away and 4.95 pounds if you decide to eat in. 3) If you have the Bento Box membership card (which I do), you get a coupon for every 30 pounds you spend there. This coupon allows you to buy anything for 1 pound. (E.g. if a lunch set was 10 pounds, then you would be paying 1 pound for it, and "saving" 9 pounds.)

So the following is our analysis to find the equilibrium price of a Bento Box lunch set. At this price, lunch investors are indifferent to eating Wasabi or Bento Box: - Assume that the price of a Bento Box lunch set is B. - You receive a coupon after you eat 30/B lunch sets at Bento Box. To simplify notation, let X = 30/B. - After you get the coupon, you use it to buy a lunch set, so you "saved" B-1 pounds. To simplify notation again, let Y = B-1. - So the amount you save on EACH of your previous Bento Box lunch sets (taking into account the amount of money you saved after using the coupon) is Y/X, because you have saved Y and you have eaten X lunch sets before you receive a coupon. - So the real price of each Bento Box lunch set is B - Y/X.

Okay, at this point, we have to equate the real price of the Bento Box lunch set, B - Y/X, with the average Wasabi lunch set price so that we can find the equilibrium price for Bento Box.

So, B - Y/X = WasabiPrice, where WasabiPrice is 4.45 if eating in, and 4.95 if taking away Using simple maths and substituting X = 30/B and Y = B-1, we see that the new equilibrium prices are B = 5.16 pounds for take-away, and 5.92 for eat in.

What`s the conclusion?

1) When Bento Box charged 4.95, it was BELOW the equilibrium of 5.16, so a lot of people ordered their lunch sets from Bento Box, regardless of whether it was take-away or eat-in. 2) After Bento Box changed its price to 5.50, it was above the take-away equilibrium but below 5.92, so people who wanted to order take-away would go to Wasabi. 3) If you want to eat in the restaurant, you would order form Bento Box any day.