The Telegraph reported last month (paywalled, but you can read it free from the New Zealand Herald):
Hapless tourists in Paris are being charged as much as 50% more than French customers, the city’s leading newspaper found.
After tourists complained online about being overcharged, Le Parisien sent out a bona fide Parisian to a cafe on the Champ-de-Mars near the Eiffel Tower.
It also dressed up one of its reporters as a typical tourist, sporting a T-shirt emblazoned with the tower, trainers, dark glasses and a baseball cap, and speaking in a passable American accent – albeit with a French twang.
They both sat down at the unnamed eatery and ordered the same dish – lasagne – and drinks, a Coke and water, and discreetly filmed themselves doing so.
The clearly French customer was served a can of Coke for €6.50 ($12.65) and offered a carafe of water with his dish. Meanwhile, the “American” was not offered a small can, only a medium or large Coke. When it arrived, it was half a litre and cost €9.50 ($18.50).
As for the water, the “American” received no offer of a carafe, which is free, instead having to fork out a further €6 ($11.60) for a small bottle of Vittel...
The Telegraph spoke to Joseph, a 21-year-old waiter who confirmed that some of the techniques were widespread.
“In one restaurant I worked I was instructed to bring spring water at €7 ($13.60) a bottle unless foreign customers specifically asked for a carafe,” he said.
This sounds a lot like price discrimination, which occurs when a firm charges different prices to different groups of consumers for the same good or service (and where the difference in prices does not arise from a difference in cost). Price discrimination comes in three forms: (1) first-degree price discrimination (or personalised pricing), which involves setting a different price for every consumer; (2) second-degree price discrimination, which involves the consumer paying a declining price for each additional unit that is purchased; and (3) third-degree price discrimination (or group pricing), which involves setting different prices for known groups of consumers.
As I noted in yesterday's post, one form of third-degree is menu pricing. Menu pricing is where the firm offers the consumer different options (that the firm knows appeal to consumers with different elasticities), and consumers select their preferred option. On the menu, items that the firm knows will appeal to consumers with less elastic demand (consumers who are less sensitive to price) are priced with a higher markup (over marginal cost) than items that the firm knows will appeal to consumers will more elastic demand (consumers who are more sensitive to price).
In the case of Parisian restaurants, tourists tend to have less elastic demand for meals and drinks than locals. There are several reasons that we could use to argue this. First, tourists have likely travelled a long way, at considerable cost, to visit Paris. The price of a meal (or some water) at a Parisian restaurant is a very small proportion of the total cost of their holiday. When price is a small proportion of the total cost, demand tends to be less elastic. Second, tourists may have higher income than locals. That means that the price of a meal (or some water) will take up a lower proportion of a tourist's income than a local's, making demand from tourists less elastic. Third, tourists may not know the area well, and are less aware of substitutes (other nearby restaurants), although Google Maps, TripAdvisor and other apps have reduced the impact of this factor. When a good has fewer substitutes, it has less elastic demand. For any or all of these reasons, we may expect tourists to have less elastic demand, and firms that price discriminate would charge them a higher markup (and a higher price).
Now, the Parisian restaurants aren't practicing menu pricing as typically described, because they are essentially removing options from the menu that tourists get to see. The locals, with more elastic demand, are offered cheaper options than the tourists, with less elastic demand. The tourists are generally unaware that there are other options available that would be cheaper (like a carafe of water).
This reminded me of my several trips to Thailand (first during my PhD, and then subsequently), where tourists tend to pay higher prices for visiting various attractions than locals do (a point I mentioned in this 2014 post). The tourist attractions in Thailand hide this fact from the tourists by putting the price for locals in Thai script, so that only those who can read Thai know that the cheaper option exists. Now, the Parisian restaurants have made me wonder about various times in Thailand and China and elsewhere, where I've visited restaurants and received a menu in English (sometimes poorly translated). It's likely that the prices on the English menu are far higher than on the menu in the local language.
All of this suggests that, when we are tourists, we should be a bit savvier about our buying behaviour. The best option is to have local friends who can identify the opportunities for saving, although this won't apply to 'friends' of the type that hang out outside airports or hotels and offer to be a guide. At restaurants or attractions, ask a generative AI app to translate a photo of the local menu or price board, rather than simply accepting the English version. At the very least, we should observe what the locals are ordering and do the same (probably this is good advice generally). Price discrimination is pervasive. That doesn't mean that as tourists we need to just accept it.
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