econlife - Does a Calorie Label Make Us Eat Less? by Elaine Schwartz

According to the 2010 Affordable Care Act (ACA), 2011 was the year that specified food vendors and restaurant chains with more than 20 locations had to post calorie counts. But because of “Big Pizza’s” resistance, they waited until 2018. Domino’s even said that their custom pizzas could have 34 million calorie permutations. Pizza Hut said it had 2 billon possibilities. (Is that possible?)

The ACA goal was to get us to eat fewer calories.

The Impact of Calorie Labels

In a recent study at one restaurant, researchers compared 1546 diners who did and did not have calorie labels on their menus. After the meal, the participants were asked about their calorie consumption.

A significant number of the group without the labels underestimated their calorie intake. Whereas they ordered meals with an average of 1341 calories, their average estimate was 1080. The size of the error ranged from 10 percent to more than 50 percent.

You can see below that the higher the calorie count, the larger the under-estimation:

Predictably, the group that had the menus with the calorie labels were more accurate. But not entirely.  Accuracy was up by 4 percent. Still, some underestimated their calorie intake and others overestimated. Men tended to pay less attention to the calorie totals.

At this point I was curious about the impact of knowing your calories. According to one recent study on what we order at fast food outlets, it did not make a huge difference. Using data from 104 restaurants before and after implementing the labeling law, researchers wound up with three years’ of transactions. From 50 million purchases, they observed that there was an initial decrease of approximately 60 calories. However, the decline was not sustained. It soon dwindled down to 23.

Our Bottom Line: Present Bias

A behavioral economist might have suggested that the calorie labels required by the Affordable Care Act will have a minimal impact because of our tendency toward a present bias. In the present, the cost of caloric restraint is considerable. We have a bias toward our current benefits and postponing the cost for later.

My sources and more: Always handy, this month’s NBER Digest alerted me to the calorie study. Then the BMJ had the fast food study.

Ideal for the classroom, econlife.com reflects Elaine Schwartz’s work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.

econlife - An Unusual Pizza Market by Elaine Schwartz

Nantucket’s pizza competition is very different from almost everywhere else.  I’ve been told that my favorite place for pizza, Pi Pizzeria, has a 50% market share. Meanwhile, the island’s other three or four restaurants that mostly make pizza split the other half.

Where are we going? To pizza markets.

Pizza Competition

In most of the U.S., the pizza market is about big and small. The big side is Domino’s and Pizza Hut. And yet, each of us could also name a small pizza restaurant located near us.

You can see that the big chains command more than half of the market:

Among the top 50 chains, Domino’s is #1 with global sales that total close to $12.25 billion while Pizza Hut, at approximately $12.03 billion is close behind. Then, with Little Caesar’s and Papa John’s in third and fourth place, we leap down to $4 billion each.

At the same time, the Independents’ slices of the pizza business are much smaller. Leading the Independents’ list, Marion’s Piazza’s nine units had 2018 sales of $21.31 million. Moving down the list, we quickly reach much smaller establishment groups with sales of less than $10 million.

Reading about the two groups, I got a very different sense of how they attract us. The larger chains are talking technology. They make online ordering easy and are experimenting with robotic delivery. Domino’s has even called itself an e-commerce company that sells pizza. At the same time, the Independents are benefiting from a more sophisticated pizza consumer that cares about fresh, local, and organic.

Here you can see that where you live determines the pizza you most prefer:

Our Bottom Line: Competitive Market Structures

As economists, we can return to our continuum of market structures where, moving from left to right, firms grow larger and more powerful. With perfect competition, we find markets populated by many small firms that produce almost identical products such as potatoes or asparagus. Next, monopolistic competition takes us to businesses that are somewhat larger like hair salons and supermarkets. Hair salons, for example, produce many of the same kinds of items (hair cuts) but have something distinctive (a certain stylist) that gives them some pricing power and product differentiation. Then with oligopoly we have several large firms that are dominant and finally, at the other end, just like the game, monopoly takes us to single firm dominance.

Pizza is in the monopolistic competition range.

But not Pi Pizza. When you produce incomparably delicious thin crust wood fired pies on an island, you wind up with more of a monopoly.

My sources and more: The 2019 Pizza Power Report and Pizza Today are good starting points for learning about pizza markets. I also recommend WSJ for more on Domino’s and Adage to confirm that Domino’s was #1 in the U.S. and globally.

Ideal for the classroom, econlife.com reflects Elaine Schwartz’s work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.