Reservations at restaurants serve as a way to engage in future planning. It is a lot easier to eat at your city’s best restaurant at 6 P.M. when you know they have a table reserved for you instead of just showing up. Additionally, reservations evidentially provide a benefit to restaurants, as they are given a general idea of how many people need to be seated. However, not everyone who books a reservation will show up. Some estimates show that around 20 percent of reservations booked at restaurants are no-shows. Not only does this harm the restaurant’s bottom line (potentially even putting your favorite restaurant in danger of closing), it also hurts those who want a table, as potential diners are forced to wait for a table.
All of this boils down to economics. People don’t fulfill their reservations because they do not always have an incentive to show up. With no penalty for making a reservation and not showing up, why would people bother canceling reservations they know they won’t use? Once again, with no penalty, why would people not just make a reservation for a night they may want to go out to eat? This is where price rationing comes in. If individuals have skin in the game, this drastically alters the incentive structure they face.
Every economic good is rationed; the question is which mechanism is used to ration scarce goods. Economic incentives shape outcomes in society, and the form of rationing shapes certain economic incentives.
With the widespread usage of the internet, software and websites have been developed to fix the old model of restaurant reservations. One such app is Dorsia. Seemingly named for the restaurant where the character Patrick Bateman (American Psycho) could never get a reservation, Dorisa is a platform that allows restaurants to charge for a table by “leverage[ing] a unique supply-and-demand pricing model to offer hard-to-book reservations for a guaranteed minimum spend.” Essentially, customers pay a minimum amount to obtain a table from a restaurant. As of today, Dorsia operates as a members-only platform in New York City and the Hamptons, Los Angeles, and Miami, with plans to expand to other cities across the country. Another such reservation platform is Tock. Though older than Dorsia, Tock uses a similar model where restaurants offer a specified number of tables available for reservation, and individuals pay a deposit to reserve the table. Tock essentially operates as a ticket system for reservations. Those who want an open table can get it – if they pay for it. Though there are differences in how Dorsia and Tock operate, both provide a valuable service that allows for efficient allocation of restaurant seats.
One of the great benefits of Dorsia, Tock, and other reservation software systems is that it allows those with a higher opportunity cost of time to obtain reservations. Rather than having to call at just the right time to get a reservation on, say, Valentine’s Day, individuals can now pay to obtain a seat at the hottest restaurant in town. This is especially important in cities like New York and Los Angeles, as they are culinary hotspots where the demand for a table is extremely high while the supply is very limited. In fact, for some restaurants in large cities, waitlists can be over 1,000 people on their most busy days.
Overall, software systems like Dorsia and Tock have the ability to change the current restaurant reservation system by putting customers’ skin in the game. With the switch from a first-come-first-serve reservation model to a paid reservation model, customers will spend less time searching and waiting for reservations, and more seats will be filled for restaurant owners. These apps and websites provide a fascinating example of how economic rationing affects everyday life and the power of entrepreneurial innovation to improve customers’ lives.
