> The same goes for mail order vs. brick-and-mortar stores. The Internet > crash makes it seem like mail order can't afford to discount 40% below > brick-and-mortar. But why not? It sure seems like a website must be > vastly cheaper to run than a physical store, especially when one website > can do the work of thousands of local stores. > Prof. Bryan Caplan
You bring up a fascinating issue that was addressed in the SF Chronicle this past weekend - the difference between take-out/mail order/internet vs. eat-in/bricks and mortar. The journalist concluded that brick-and-mortar stores served an important economic function in many industries - warehousing that was sensitive to supply and demand. Take cars - why can't we just select a car over the internet, have it shipped to us and then save the money that used to go to local car dealers? Allegedly, it's because the manufacturer takes a great risk when they make a bunch of cars and pay for the storage costs. The auto dealer takes on the risk and makes it easier for the auto firms to concentrate on making cars. In a lot of industries "bricks and mortar" help spreads the risk of having lots of unsold inventory. The inventory is spread among many people who can then get rid of inventory more easily because they understand their customers and more easily figure out the clearing price. In exchange for bearing the risk, they get a mark up. The internet only firm must bear the risk themselves and jack up the price appropriately. You can save a little on less employees, but you have to absorb the cost of unsold inventory and its storage. These are *huge* costs. As far as the eat-in/take-out thing goes, I have some experience working in restaraunts. I have observed that the take out operation often requires at least one or two people to work the window and sometimes extra stuff like disposable plates, the actual take out window, the printing of take out menus, etc. Also, I've noticed that most of the price of food is labor and the ingredients, while site costs are spread out over years and make up a small portion of the price. Real world data: A taco from one of those trucks costs about $3-$4, while a decent mexican place will charge $4-$6. Reducing the dine-in *completely* only reduces the price by $1-$2. Not a gigantic savings. Ergo, restaraunt food is mostly labor and ingredients. Fabio
