In Vino Veritas

Several projects command my attention on any given day, but the one consuming most of my time at the moment is a wine business I run with the financial backing of a few expats. We're currently importing 19 types of South African wine and retailing it in Kigali. In the past week or so, we've begun pushing our juice to several restaurants, whom we've found are in desperate need of palatable wine. Last night as one restaurant manager was sampling a few bottles of our selection, he showed my colleague and me his wine list. He explained that he had spent little money or effort on the menu because he was never sure of his supply and always had to be ready to produce a new list. Making the list cheaply meant he could be more responsive to whatever changes might come his way.

This little explanation brought to my face what one housemate calls my "stupid grin," because it was a great example of what economists call intuitively (for once) menu costs: the costs of a price change. If duck suddenly becomes more expensive, for instance, a restaurant serving foie gras will probably want to charge a higher price for it. They may not do so, however, because the extra cost of updating their menu could outweigh the extra revenue resulting from the higher price. If this were in the fact the case, the price would be dubbed sticky, or resistant to a change in the market.

Some schools of thought in economics stress price stickiness (such as with wages, which don't tend to go down even in bad times) as an important factor in understanding the ups and downs of economic activity.  I on the other hand stress price stickiness as an important factor in understanding why it's hard to remove price tags from wine glasses.