Will Lygon Street’s spruikers have the last shout?

I imagine economics teachers have abandoned school trips to Victoria Market and are now heading with their charges to the more exciting restaurant strip of Lygon Street. Why show them something as delicate and ephemeral as “perfect” competition when just up the road they can see how markets really work in the messy and dirty real world?

The Age reported last week that a number of restaurateurs in Lygon Street have come to the belated recognition that spruiking was bad for business. In essence they have been fighting over how big their slice of the pizza is while all the time the pizza is getting smaller and smaller because of public distaste for spruiking.

As one reviewer puts it: “If there is one thing I hate, loathe, detest with every fibre of my being, it’s restaurant spruikers. I just can’t stand them…. But if a restaurant spruiker comes and tries to get me to go inside, well…. I’m sorry. For me, that’s an automatic Permanent Rejection.”.

Last Tuesday afternoon, according to The Age, “the owners of eight Italian restaurants on the eastern side of Lygon Street between Grattan and Pelham met to discuss what to do about a practice that is both tradition and millstone. The informal gathering decided unanimously to put an end to spruiking”.

This sort of agreement is usually seen as inherently unstable because there’s an incentive to cheat (I’m refraining from labelling it a cartel because there’s presumably no damage to the public interest from abandoning spruiking, so such a pejorative term seems out of order). An individual owner would do better by breaking the agreement than by abiding by it because the short term returns from cheating are greater than the long term losses from the collapse of the cartel.

And inevitably the happy equilibrium was broken. The Age reports that by the next afternoon “one restaurant ….was back on the street, selling its own merits”. One restaurateur is quoted as saying that the agreement lasted 49 minutes. ”It’s either all or nothing. If one restaurant is doing it, it gives them an unfair advantage.”

However there seem to be at least one variation from the text books here that my notional economics teachers might choose to point out to their students. Cheating seems a strong term if the other owners can easily detect what the “cheater” is doing. Perhaps the restaurateur who withdrew either wasn’t entirely convinced that the pizza was getting smaller, or is calculating that the other restaurateurs will stick with the agreement for a while yet, thus providing at least a short term advantage.

But if you are the only restaurant spruiking, does that actually give you an advantage over other restaurants or are you more likely to be seen as suspect by patrons? Perhaps spruiking is only an effective marketing strategy if at least some other restaurants also do it.

I have no idea what happened on the weekend. The Age ran a poll showing 78% of readers think spruiking should be banned in Lygon Street.

P.S. – for at least the last five years, the manager of my local shopping centre has adopted the practice of leasing circulation space at the entrance for about a week to commercial organisations wanting to sell their wares and services to shoppers. Most of the organisations seem to be charities and initially at least they were relatively passive. However increasingly they have become more forward in their sales approach. Many of them have bypassed mere spruiking and moved directly to the more aggressive tactic of touting i.e. addressing individual passers by directly with a sales pitch. Whereas initially they were well-known charities now what they do and stand for, or even if they are charities, is becoming cloudier.