Yesterday I walked into the departmental mail room and had a doctoral student asked me a question I have never pondered before: Why do after-hour bars suck? I was a little perplexed. It has been a long time since I considered anything involving after hours — except perhaps a kid waking up with a nightmare. So the student explained that he always finds bars that stay open late fairly unpleasant with crummy decor and worse food. And that’s when I knew I could answer the question.
As I mentioned in my last post, I have though some about how a firm should set its hours of operations. There has been some work done on this (in particular by an economist named Oz Shy) that considers a market with two firms and consumers who vary in their preferred shopping hours. Go through enough machinations and you have a model in which firms choose whether to be open all the time or only some part of the day. If in equilibrium the firms pick different hours of operations, they have very different pricing problems. The firm that is only opened part of the day always faces competition when it is open. The firm that is open all the time is a monopoly at some hours. If the firms cannot vary their prices over the day, the firm with longer operating hours charges higher price to better exploit its part-time monopoly position.
OK, so that explains why your local 24 hour convenience store charges more than your neighborhood supermarket, but how does it relate to bars? Well, what makes a bar nice (e.g. a half-decent kitchen) is costly to provide. If the market is very competitive, it may be worth investing in these services in order to attract more demand. But after-hour bars are not always in a competitive market. Once most bars are closed, it does not need good food to attract customers, so longer hours leads to crummier service.
This is also a slightly different story than focusing on just pricing. Specifically, if the firm could vary its pricing over the day, this phenomenon goes away. A firm with longer operating hours lowers its price when the competition is open but jacks up the price when the competition is closed. However, it would be harder to vary processes and investments that drive service quality over the day. That is, suppose having a nice room and sourcing good ingredients is what it takes to please our doctoral student. Such measures cannot be adjusted by time of day and increase costs regardless of the hours of operations. Hence, after-hour bars will always suck.