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Archive for May 20th, 2010

Panera Bread logo

Panera Bread is trying something new at a St. Louis location:

Panera Bread Co. has reopened a downtown Clayton location as a nonprofit where customers can pay what they can afford.

“Take what you need, leave your fair share,” says a sign at the entrance of the Saint Louis Bread Company Cares Café. Patrons who can’t pay are asked to volunteer their time.

The café, which reopened Sunday as a nonprofit, has cashiers who provide receipts with suggested prices and direct customers to the store’s five donation boxes. The menu is the same, except for the day-old baked goods brought in from sister stores in the area.

Okay so not exactly a free lunch, but this does throw a wrench into neoclassical theory’s law of one price.  There is no equilibrium price here; instead, people pay different amounts depending on what they have or want to spend. And some can even pay by volunteering their time. It’s not clear that general equilibrium analysis is at all useful for this type of market.

In addition, this model calls into question the conventional understanding of economic man, as even the CEO observers:

“I’m trying to find out what human nature is all about,” Ron Shaich, who stepped down as Panera’s CEO last week but remains as chairman, told USA Today. “My hope is that we can eventually do this in every community where there’s a Panera.”

Lastly, a nonprofit restaurant whose main goal is to cover costs is quite different from the profit-maximizing firm that we learn about in our economic theory classes. Maybe, economists also need alternative theories of the firm.

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