Wednesday, November 10, 2010

Happy Meals and Bundling

Jeff Ely wrote an interesting post on the economics of San Francisco's decision to de-bundle the Happy Meal. He concludes:
So I don’t think that economic theory by itself has a lot to say about the consequences of the Exiled Meal. The one thing we can say is that McDonald’s doesn’t want to be forced to unbundle. Putting constraints like that on a monopolist can sometimes improve consumer welfare and sometimes reduce it. It all depends on whether you think McDonald’s increases its share of the surplus by lowering the total or raising it. The SF City Council, like most of us one way or the other, probably had formed an opinion on that question already.
Ely was responding to a post by Joshua Gans at the Harvard Business Blog that argued that the Happy Meal ban (no toys with fast food) could make us less healthy. Here's the key phrase:
That's what happens if McDonald's makes their Happy Meal healthier. The even worse outcome could be that McDonald's simply removes the toy altogether and competes solely on the bad stuff. That means more bad stuff in all meals and all kids eat worse.
Here's another thought: If all kids would eat worse, conditional on going to a fast food establishment, health-conscious parents may go to fast-food joints less frequently. Without the toys to attract kids to fast food, they would face less resistance in choosing a healthier option. Then again, I'm not sure this is a choice that city councils should make. It seems to me that parents (or maybe the kids) know best.

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