The Smorgasbord Effect in Economics

“So, whether you eat or drink or whatever you do, do it all for the glory of God.” (1 Corinthians 10:31 NIV)

Smorgasbord restaurants, though not as common as in the past, were once mainstays in the South and Midwest.  The concept was simple—pay a “flat price” and then consume all of the food, soft drinks, coffee, and desserts that one desired.  The smorgasbord model has broken down over the years, and for very good economic reasons.  In economics, if a product or service has a “zero price,” then it tends to be over-consumed, much to the dismay of any supplier.  Obviously, smorgasbord restaurants never had a zero price, but the consumer’s perception was this—once you paid the entry price, then consumers perceived that “everything was free” after that.  This is a real problem in economics, as even the perception of a zero price results in uneconomic decisions by consumers and significant challenges for a supplier.

If one has ever been to such a restaurant, think back to the experience when you were leaving the dining room.  Ever notice the vacated tables?  They are typically full of half-eaten pie, piles of desserts that looked tempting but did not live up to expectations and, of course, the still-full glasses of soft drinks.  These “leftovers” highlight the problem when consumers view something as being “free.”  Consumers typically over-indulge and the restaurant manager is left with wasted food and huge volumes of dirty dishes and cutlery.  This is the very heart of the problem with a zero price—or perceived zero price—for anything.  Invariably, this model breaks down over time.  One remaining restaurant using the smorgasbord model continues to raise the price of its meals in an attempt to overcome the higher costs of waste and related inefficiency, but the higher prices do not get to the heart of the problem—the perception of “unlimited food and beverages” once you pay the entry price.

There is certainly an economic lesson for all of us to learn from the smorgasbord effect: free products, or the perception of such, is not a sustainable economic model for success in a business.   In fact, the old saying, “there is no free lunch,” is just as applicable today as in the past.

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