OK, the question of price elasticity of demand (or supply) has come up from time to time and I’ve been looking for a good example. I think I’ve found it…
When I was a kid, there were 2 pieces of chicken that most folks just did not want to eat. There were folks who wanted white meat, and folks who like meaty dark thighs and legs. But backs and wings were bony and not that interesting to most folks. Wings were often given to children as a small piece they could handle with a ‘sort of a miniature drumstick’ effect. But if you were selling “parts”, the market for backs was nearly nil and wings were close.
In the family restaurant, we had one customer who really liked the back (but that may have been because we would give him twice as many…) and a couple of folks who liked wings. (I actually like them because you get more ‘crusty bits’ to meat ratio…). Breast meat sold for the highest premium, legs and thighs next, and wings near the cheapest.
Basically, a chicken comes with 2 wings, want them or not. The ‘supply price elasticity’ is substantially nil. You will cut up the chicken for breast meat, legs and thighs, and, well, you will get 2 wings and that’s that.
First off, the growth of the pet food industry and centralized commercial chicken packing has resulted in the substantial elimination of ‘giblets’ in the chicken. We used to make a seasoned ‘chicken innards’ dish that was floured, seasoned, slow cooked livers, gizzards, and hearts. I’d cut up 50 chickens per case and prep them for fried chicken dinners, and the innards would hit the freezer. When we had enough, the chicken innards would be turned into a wonderful savory gravy stew. I loved it (as did the customers). It was also common to find tubs of hearts or livers sold in the grocery store. Now it’s almost impossible to find them. Notice all the cat food that is “something & liver” these days?
That is a coping behaviour to raise the elasticity of demand for chicken innards. And the price the pet food industry will pay is higher than the price people will pay (and fewer folks are so poor as to eat only very cheap ‘cuts’). So the ‘innards’ now go largely to pet food and not to the meat counter. It’s become almost impossible to find the kidneys needed for a ‘steak and kidney pie’ in California.
But Wait! There’s More!
Buffalo Chicken Wings and Asian Drumettes hit the scene… Starting from the desire for a finger food of folks looking for a cheap snack, a load of seasonings were put on cheap chicken wings that you could buy for nearly nothing. The whole idea was to find a way to make a decent snack out of this very cheap part of the bird. After all, you got 2 per bird and nobody wanted them… So the cooks and chefs of the world came up with ways to make ’em worth the trouble.
And succeeded WAY too well…
During August, the local Lucky’s store was selling legs and thighs for 99 Cents a pound. But due to the demand for BBQ party food, wings were going for $3.45 a pound. This month, wings were down to $3.25 / pound. The “demand price elasticity” was biting. The chefs had created a major demand for wings that could not be met with “only” two per bird… so prices had to rise until someone didn’t buy them.
So we have an inelastic supply that has run head long into increased demand. And thanks to the recipes calling for wings or ‘drumettes’, the demand elasticity is also low (but out of equilibrium with the supply, unless the price goes way high).
Eventually I expect folks will figure out that they can make a full sized drumstick taste just as good with the same sauces, and learn to cook them to similar effect. And eventually I expect someone will come up with a recipe using thighs with the meat cut off in ‘drumette’ sized chunks. But until then wings have become a ‘price premium cut’…
All because the supply elasticity is constrained by ‘two per bird’ and the demand elasticity is constrained by the published recipes and public expectations about ‘party wings’.
In the short run, both demand and supply are relatively inelastic.
In the long run, folks will start making other snacks. (Chicken Strips anyone?)
A very similar thing can be seen with Ribs. During summer months when the BBQ demand is up, pork ribs will sell at a premium. I’ve seen them at 2 times the price of prime pork roasts. That was unheard of when I was a kid. Ribs were ‘poverty food’ with lots of bone in it and not much meat. Now the party and BBQ demand is up, and folks want more ‘party food’, and that means ribs, not pulled pork roast. In winter the prices come down on the ribs, as few folks want to BBQ in the snow and more are willing to do a long slow roast in the oven.
But each pig comes with the same number of ribs, winter or summer… So inelastic supply meets demand and the price elasticity of demand raises the price to the point where someone decides ‘dogs and burgers’ is just fine (and skip the ribs…).
But I still think it’s just crazy that folks will pay almost 4 times the price for wings, when there is so much more meat on the legs and thighs… Then again, I’ve been using a knife cutting up chickens since I was 8, so It takes me about 1/2 a minute to turn a chicken into pieces and about the same to turn the pieces into ‘chicken strips’… and I love “Buffalo Chicken Strips” just as much as the wings ;-)
And in the long run, as more folks learn that ‘trick’ and some “Asian Chicken Strip” recipes get published, and… well, you can see where this is going. Long Term price elasticity of demand changing as ‘technology and innovation’ have an impact…