Would You Pay $30 for Domino's Pizza in Times Square on New Year's Eve?
When sellers raise prices temporarily, it’s often mistaken for price gouging.
Posted Jan 13, 2020
The Incident: $30 for a Large Domino’s Pizza
Here’s what happened. The regular menu price of a large three-topping Domino’s pizza nationally is around $16 (not including delivery charge, tax, or tip). Most of the time, with a coupon or a special deal, you can buy the pizza for considerably less than that.
However, for the past 15 years, on every New Year’s Eve, one Domino’s Pizza franchisee in midtown Manhattan in New York City has been sending its employees with a stack of large pizzas to Times Square and selling them for $30 apiece, a substantial markup over the regular price. The store did so this past New Year’s Eve as well.
The tourists bought the pizza and paid the price happily. Over 50 pizzas were sold by 6 pm. One satisfied customer said, “It’s absolutely worth it. It was hot. It seems like it just came out of the oven. If he comes back, I will buy some more.”
No big deal, right? Everyone was happy. The consumers enjoyed the $30 hot pizza. The Domino’s Pizza franchisee sold pizzas and made money during the celebration.
Not so fast! New York City’s Mayor Bill de Blasio got wind of this, and on New Year’s Day, he tweeted:
“Jacking up your prices on people trying to celebrate the holidays? Classy, @dominos. To the thousands who came to Times Square last night to ring in 2020, I’m sorry this corporate chain exploited you—stick it to them by patronizing one of our fantastic LOCAL pizzerias.”
Many people criticized the mayor, coming out in defense of the store’s pricing decision. Soon, phrases like “price gouging,” “surge pricing,” and “dynamic pricing” were bandied about to attack, defend, or explain the $30 pizza price.
The core question remains. By charging $30 for a large pizza, is the Domino’s franchisee exploiting tourists gathered in Times Square to celebrate New Year’s Eve? To answer it, it is important to clear up some misconceptions about the price increase.
Is This Price Gouging?
In his tweet, the mayor stopped short of calling it price gouging, but he came close. Others went further. The truth is that such a price increase comes nowhere close to price gouging.
In the United States, price gouging laws are enacted and enforced at the state level. By and large, they use three criteria to determine if a price increase is gouging:
- The price increase is abrupt and occurs during a disaster or emergency. New York’s law refers to this as an “abnormal disruption of the market” resulting from “triggering events such as "weather events, power failures, strikes, civil disorder, war, military action, national or local emergency, or other causes."
- The price increase applies to products and services that are deemed as necessities.
- The price increase is beyond the norm. For example, Texas law refers to the increase as “exorbitant or excessive” while New York’s law calls it an "unconscionably excessive price."
A typical example of price gouging is when sellers increase prices of gasoline or grocery staples drastically during or after a hurricane.
From the criteria, it should be clear why the Domino’s store is not price gouging. A New Year’s Eve celebration in Times Square is not a natural disaster or emergency. Pizza is not a necessity. And $30 for a large pizza is not an exorbitant or excessive price increase. Selling a pizza for a few dollars higher than the usual price during a celebration falls far short of the criteria necessary for price gouging.
Is this Surge Pricing or Dynamic Pricing?
When consumers (and even business experts) see any price change these days, and especially any price increase, they pounce, characterizing it as surge pricing or dynamic pricing. Then they criticize the price increase because these pricing methods usually take more money out of consumers’ wallets. However, a one-time temporary price increase is not surge pricing.
The primary purpose of surge pricing, raising prices for a short-time period, is to match supply to demand. As I’ve written before on this blog, rideshare company Uber uses surge pricing when there are many more riders than drivers so as to make it more lucrative and bring more drivers into service. This is not the case here. Charging $30 did not increase the supply of pizza, Domino’s only had a certain number they could sell in Times Square.
Similarly, dynamic pricing refers to the practice of varying prices frequently in response to changes in demand and customer valuation. When demand is high, and customers value the service more, prices are raised incrementally. During slow periods, prices are lowered. Ticket prices at Disney World or Universal Orlando, airfares, hotel room rates, and many other prices are dynamic with multiple levels and frequent changes. A single temporary price increase for one evening of the year does not constitute dynamic pricing.
Why Temporary Price Increases Like This One Make Sense
There’s no reason why a Domino’s pizza should have a fixed price all the time. Pizza comes in so many variations and with so many options like toppings and crusts that every pizza order is going to have a different price. And $30 is well within the reasonable range for a large pizza. Plus, as I’ve written before on this blog, the price of virtually every product and service fluctuates today, as marketers consider variables such as customer willingness to pay, the costs of providing the product, competitor prices, and so on and make pricing decisions.
On a cold New Year’s Eve, when Times Square is full of hundreds of thousands of tourists waiting for the ball drop for hours on end, their willingness to pay for a hot slice of tasty pizza is high. Getting someone to haul a pile of pizza boxes and sell them in that crowded environment is costly, and competitors’ prices are high. If a company can’t raise prices in such a circumstance and still delight its customers, when can it?