Toward an understanding of market forces in Helvetic pizza pricing schemes

Sorry that I haven't been writing much lately, the reality is that there just hasn't been all that much to write. This is due to a couple of reasons. First, I have not been up to a whole heck of a lot: lots of work, not a lot of exciting social activity. Second, all of the things that I used to find really weird about Switzerland -- and thus worthy of posting on this blog -- have become somewhat commonplace and unremarkable now that I've been here almost six months.

For example, there was an election (or referendum or whatever) a couple weeks ago having to do with extending travel and job rights to Romanians and Bulgarians now that they've joined the European Union. As far as I can tell, only the really conservative parties were against this, since if it had failed it would have put a huge strain on the relationship between Switzerland and the EU and caused all sorts of problems. Anyway, the posters that they put up to try to convince people to vote against the measure showed a bunch of black crows picking away at a map of Switzerland with the slogan "Open the door to abuse? No!" If this poster had been used in American politics, it would have been widely scorned as racist, alarmist, etc. and there would have been a huge public outcry. Here, though, this is at least the third time that the UDC (or a similar group) has used the image of a "black" foreigner threatening the Swiss way of life. This one isn't even the worst or most controversial of the lot, but it was all over the place for weeks before the election. Anyway, I have to admit that other than making me laugh a little bit, I didn't really find the poster too surprising or too crazy. I mean, that's just the way the UDC rolls. Fortunately, the Swiss people found it frightening enough that the referendum passed easily and the integration with the EU is continuing smoothly.

---

Here's something weird about Switzerland: food prices. Grocery stores are generally pretty reasonable, although fruit and vegetables can be a bit pricey, but eating at restaurants is almost ridiculously expensive. Generally, when I go out to eat (which is not often at all) I just accept the fact that things are expensive (usually 15 - 20 CHF for a pizza, compared to roughly half that in neighboring Italy) and just ignore the prices. The usual explanation for this is that labor costs are high, so restaurant prices are forced upward by the high cost of paying waitstaff, cooks, etc. The flipside to this is that if you order food to takeaway, you usually get a small discount. All of this seems if not reasonable at least justifiable.

That said, there is absolutely nothing that can justify one (tiny) aspect of Swiss cooking: pizza delivery prices.

Only a few companies (Domino's included) exist that deliver American-style, large pizzas, so the concept clearly isn't as popular here. Still, the idea of inviting a few people over, ordering a couple of pizzas, and hanging out is an appealing one and I've thought about doing it. Well, I thought about it until I looked at what delivered pizza costs around here. Here is a flyer that I got in my mail, which, I assure you, is very similar to all the other offers I've seen here.

Fig. 1: Thank goodness they alerted me to these awesome prices by stuffing this flyer in my mailbox.

Adjusted for the exchange rate, a "large" cheese pizza costs roughly $29. Oh, and the coupons are such exciting deals as "10% off of orders greater than 30 CHF", so you don't really save a lot there. All in all, ordering pizza is not a particularly wise move here. Here is a graph to prove it:

Fig. 2: Pizza price versus area in Lausanne (circles) and Palo Alto (triangles), with linear fits. For the first time since I started the blog, the whole "Fig. 2" thing actually makes sense. That makes me a little bit proud.

I took the cost of the cheapest pizza available from pizza.ch and compared it with the cheese pizza from Ramona's Pizza, in beautiful Palo Alto, CA. I chose Ramona's (which was one of my favorites when I lived down the street from it) so that I wouldn't be accused of comparing apples to oranges. Ramona's is not cheap and they don't run crazy sales and coupons like the big chains do. Thus, this should be a decent comparison of "everyday" prices.

The plot shows the cost of the pizza (converted into dollars) verses the total size of the pizza (in square inches). The Swiss prices are given by the black circles, the US prices by the triangles. The red and blue lines are linear fits to the data, extrapolated all the way to "no pizza". The fact that the data are well-described by lines suggests that the total cost of the pizza is composed of both a "fixed" cost per pizza and a "marginal" cost per square inch. Given that labor costs should be roughly independent of the size of the pizza (it doesn't take that much longer to make a bigger pizza than a smaller one), one would think that if food prices in Switzerland were driven by high labor costs, then the main difference between American and Swiss pizza prices should be reflected in the fixed cost. Yet, in both Switzerland and the US, the fixed cost is fairly similar ($3.88 in the US, $4.87 in CH).

The real cost difference is in the marginal cost. The cost of an additional square inch of pizza in Switzerland is almost seventy percent greater than it is in the United states (11.4 cents versus 6.8 cents)! As mentioned earlier, the cost of raw ingredients in the two countries is similar (I'd say that prices here are probably 10-20% higher on average), yet this is in no way reflected in the marginal cost of extra pizza.

Fig. 3: Same as Fig. 2, but with the inclusion of a hypothetical "future Lausanne" line (magenta), reflecting the possible price of pizza if marginal costs drop to only 10% greater than the marginal costs in the US, similar to raw material price differences. Is there hope for a better tomorrow?

Plan and simple, Swiss people are getting ripped off. Although I'm no economist, I suspect that the high prices have something to do with the scarce competition and niche market for pizza delivery here. Maybe someday, Swiss people will embrace delivered pizza as their meal of choice for lab meetings, corporate seminars and the like, thus bringing prices down to more reasonable levels, but until then, I think it's best to walk down to the nearest place and just get takeaway.

---

OK, I actually have some more minor things to post, but it's getting late so I'll try to write something short tomorrow. Sorry if this post is a little bit whiny and negative, I promise the next one will less lame.