Why Are Restaurant Lobsters Still So Expensive?

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In case you haven’t heard, New England is neck-deep in lobsters. Due to warm weather, conservation efforts, and the machinations of the wily lobster-processing Canadians, lobster prices are cheap, cheap, cheap. As the New York Times pointed out in July, prices are at a 40-year low:

“At one lobster cooperative here, the price that fishermen received for lobster last week fell to $1.35 per pound (plus a 70-cent dividend per pound, to be paid later in the year), down from about $3.80, and in some cases $4, at the same time last year.”

So, why, pray tell me, that on every trip I’ve made to Maine this summer, are lobster roll prices so high? They’re often commanding $13 to $20 a pop, which seems absurd for a “market price.” With lobster going for less than $1.50 a pound, shouldn’t rolls—and for that matter, whole lobsters—be priced more like cheeseburgers?

Thankfully, Slate‘s Matthew Yglesias, who has a far better understanding of economics than me, answered the question yesterday afternoon after a trip up to Stonington, Maine. In short, Yglesias tells us, that “market price” you see on your restaurant menu has only a little to do with the actual price the lobsters are sold at:

“The price of lobster, like the price of anything else, is set in a market. But the market price you pay is fundamentally a price determined by the restaurant market, not the market for lobsters. And the issue is a basic one of capacity and competition.

Think back to the Fisherman’s Friend and its excellent location. Stonington is a great place to visit. But it’s also a very small town. There aren’t very many places to eat. And if it’s a certain kind of coastal Maine seafood dinner experience you’re after, there aren’t anyother places in town to go. There’s a little reason to fear losing customers to the boil-at-home option as lobster prices fall but no reason to worry about a nearly identical competitor next door poaching your customers. Nor is there a nearly identical competitor next door whose customers you might hope to poach with a discount.”

Of course, whenever the price of lobster rises, restaurants are sure to jack up their prices—they’re not going to sell at a loss, after all. But until then, they’ll enjoy the cheap prices and the record profit margins they bring in.

  • http://BostonDaily Ellie Donovan

    Although I agree that the lobster prices are signifficantly down, restaurants/lobster pounds are not reducing their prices – we were on vacation in Wells Maine and went to the Lobster Pound in Ogunquit which we paid $18.95 a pound for lobsters. Borderline hard shells, it was a rip off by far, he should definitely lower the price!!!

  • Peter Straube

    I have to disagree with Matthew Yglesias’ definition of “market price”. Using his reasoning, every item on every menu should really be listed at “market price” instead of a specific number. The fact is, most restaurants consider a combination of factors when setting their menu prices, including the predicted costs of the ingredients, the amount of markup they will need to pay the rest of the bills (labor costs, rent/mortgage, decor, etc.), the margin (menu price minus the cost), and what the competition is charging for similar items. Lobster is no different, except that the cost of this ingredient tends to be way more variable than for most other menu items. So the term “market price” signals to the guests that today’s price will have something to do with what the restaurant paid for the lobster you’re eating that day. Given that fact, ethical restaurants should indeed be passing those savings on to guests, as well as increasing the price when the costs go up. Otherwise, they have the option of just setting a standard price for lobster like for everything else on the menu.

  • Maxine Roberts

    Keep in mind also that lowering the price of such a commodity significantly creates suspicion amongst customers. After reading a post I discovered that when blind folded some people prefer cheaper wine than expensive when but when they can see their choice they get more satisfaction from the more expensive wine. But please do continue to post your opinions. I’m 16 and I think I like discussing topics like these. Thinking of majoring in economics. 🙂