The Parable of the Happy Meal. Here’s an excerpt:
Some restaurants offer burgers without fries and a drink. These restaurants cater to low-income people who enjoy fries and drinks but can’t always afford them. To rectify this sad situation a presidential candidate proposes The Happy Meal Act. Under the Act, burgers must be sold with fries and a drink. “Burgers by themselves are not a complete, nutritious meal,” the politician argues, concluding with the uplifting campaign slogan, “Everyone deserves a Happy Meal!”
But will the Happy Meal Act make people happy? If burgers must come with fries and a drink, restaurants will increase the price of a “burger.” Even though everyone likes fries and a drink they may not like the added benefits by as much as the increase in the price of the meal. Indeed, this must the case since consumers could have bought the meal before the Act but chose not to. Requiring firms to sell benefits that customers value less than their cost makes both firms and customers worse off.
Alex Tabarrok writes about employees vs. contractors but the this part of the story applies just as well to travelers and checked bag fees.
We all want free fries and a drink (unless we’re low carb or avoiding the calories, but go with me here). Yet there’s no such thing as free fries.
Spirit Airlines then is the McDonald’s (err… the Grimace?) of air travel, offering us value meals with a dollar menu. I couldn’t even tell you how many year’s it’s been since I’ve eaten a McDonald’s hamburger.
Do you want to order a combo or a la carte?