Thursday, May 08, 2008
Get your 23-cent pizza!
When it comes to pizza, Cleveland and economics, Rob Holub is on the scene.
As a gesture of goodwill to the Cleveland Cavaliers fans, Papa John's is offering 23 cent pizzas as a peace offering for a D.C. area manager printing up shirts making fun of LeBron James. Do you think people like 23-cent pizza? Judge for yourself here and here.
Some quick facts:
- There are 1,200 people in line at one location; another estimate is at 1,700.
- Papa John's stopped taking phone orders long ago.
- It took 3 hours and 20 minutes for one person to get their 23-cent pizza.
- Due to the popularity of the event, traffic on some freeways has slowed to a crawl around exits near Papa John's locations.
The obvious question here-- and it's the same when gas stations go on the cheap as a promotion-- is why do people wait in line for a giveaway when, considering the opportunity cost of doing so, it seems like a losing proposition? I think the only answer is that people really enjoying being part of a promotion. They get value out of the story; sure, I had to wait in line for 3 hours to get a cheap pizza, but how can I possibly value being able to tell my friends for the indefinite future? I don't believe it's entirely separate from betting longshots at the racetrack-- the story has value, and maybe because it's indeterminate exactly how valuable it is, you end up with individuals massively mis-pricing it.
I can't think this is a bad deal for Papa Johns; they seem to take a mild one-time financial hit (if at all-- could a plain pepperoni pizza cost them more than 23 cents?) for a big publicity boom. This is a very big company, too-- they just announced recently that they surpassed $1 billion in online orders alone. Most of the downside of this ordeal is shoveled onto the community-- congestion and a few instances of impatient customers requiring an increased police presence. Increasing private benefits through increased negative externalities? That's the plan of the day.
If the Cavs win the NBA title, I bet Papa John's might pull the same trick again.