IN PURSUIT OF UNDERSTANDING MARKUPS IN RESTAURANT SERVICES PRICES

Abstract

Measuring markups in restaurant services is a difficult task. Although the sales price is observed, cost of the product served is unobserved. In this study, we employ an intuitive framework and focus specifically on markups on soft drinks. We analyze the determinants of markup on soft drinks in restaurants over 2006–2014. Results suggest that current demand conditions (net minimum wage, output gap), major cost items (food and energy prices, exchange rate) and economic uncertainty (exchange rate volatility) significantly affect markups. This strategy enables the detection of relevant factors which may not be possible to detect in other settings.