I don't think there's any price discrimination going on here, especially considering the difficulties in distinguishing between thirsty and not-so-thirsty consumers.  Instead, I think pricing refills at (practically zero) marginal cost is simply another form of price competition among similar restaurants.  The Super-Bird at Denny's is pretty close to the Club at Lyon's.  The Quarter-Pounder and the Whopper are almost perfect substitutes.  If the (economic) profits in food items have been competed away, then there is an incentive for restaurants to lower soda prices to marginal cost, noting that the marginal cost of the first drink is not zero.  Note also that juices are usually excluded from "bottomless" drink offers.
 
Restaurants that can distinguish themselves through non-price competition, i.e., with food quality have no such incentive.  This might explain why fancy restaurants seldom give free refills.  Granted, these places often give free-refills on coffee.  However, coffee becomes a bad if it's not consumed shortly after production.
 
Seiji
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Seiji Steimetz                               Office:  Social Science Tower 305
University of California, Irvine     Email:   [EMAIL PROTECTED]     
Department of Economics          Web:    http://zotnet.net/~steimetz    
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"Every time a calf is born, the per capita GDP of a nation rises.
 Every time a human baby is born, the per capita GDP falls."
  -- Julian Simon
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----- Original Message -----
Sent: Saturday, July 08, 2000 3:53 PM
Subject: Free Re-fills


Is there any logic to whether restaraunts offer free refills for soda
drinks?

I've observed one street alone among  three restaraunts serving
similar clientele all three main forms of refill policy: free,
discounted and full price.

Any insights?

-fabio

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