Bagel with Cream Cheese

Here is an economic riddle that has been bugging me for a while now. At the Einstein's Bagels on my college campus, a bagel costs 99 cents. Fair enough. A bagel with cream cheese costs $2.19 - meaning the price of the topping, cream cheese, is more expensive than the bagel itself. But I know that cream cheese itself is not an expensive item - I can buy a tub of cream cheese at Whole Foods for $1.50 and it will be good for about 6-8 bagels.

(from flickr user pirate johnny)

At first I thought maybe it was just the particular Einstein's location that was ripping people off. But then I noticed it just about everywhere I looked.

There are few other toppings that I can think of which exhibit this phenomenon. McDonalds might charge a slight premium for a cheeseburger over a hamburger, as might most restaurants. But even so, it would only be a fraction of the cost of the main dish. What Einstein's is doing would be the equivalent of a Five Guys asking $5 for a hamburger and $11 for a cheeseburger. It just doesn't seem quite right.

Yet spend any amount of time in this Einstein's and there will be plenty of people who order the bagel with cream cheese anyway. I can suggest two possible explanations. If anyone has another theory to add, please do.

1. People don't notice because the price is still very low. The hamburger/cheeseburger example is easy to notice because $11 is a lot more than $5; but the bagel example is harder, because even though the proportions are the same, $2.19 just doesn't seem that much more expensive than 99 cents. And, you might think, $2.19 is a great deal and one of the cheapest things on the menu.

2. The demand curve for bagels with cream cheese is highly inelastic. Perhaps there are people who will not eat a bagel if it is not topped with cream cheese. I don't think anyone caries around a tub of cream cheese with them on campus, so Einstein's can get away with charging a huge premium for cream cheese simply because the customer is not price sensitive to it. Either the customer will buy the combo or will buy nothing - there is no middle ground.

Whatever the case, I will continue buying the bagels and bringing them home where I can apply my own cream cheese for a much lower price.

4 comments:

    On September 23, 2009 austin said...

    solution - don't buy cream cheese.

    you're a sucker, rob. the can charge it cause you will pay for it. just get asiago bagels. they already have real cheese on them and there is no premium.

     
    On September 24, 2009 Anonymous said...

    The labor in applying the cream cheese might be significant in this case, although I suspect it really is just an inelastic demand curve as you said.

     
    On October 02, 2009 Jeffrey said...

    I once made a similar observation (out loud) at the Bruegger's on Cedar/Fairmount. I must have said it with a smile because the manager didn't get angry but followed me to the cash register and proceeded to explain the whole thing.

    The bagel is one price. Non-published is the slicing price. And you can get the cream cheese separately for a different price. Applying the cream cheese to a sliced bagel is the most common option so they roll all these charges into one package.

    So it's a combination of product (bagel, cream cheese) and labor (baking bagel, slicing bagel, spreading cream cheese), not to mention their overhead and free wifi.

     

    I wondered the same thing and also wrote about it. Just happened across your entry and thought I would comment.

    It's not just Einstein Bagels, which is also where I used to buy mine, it seems to be everywhere that sells bagels and cream cheese.

    It can't be that cream cheese is that expensive, especially as you can buy a whole tub for the price of them putting a shmear on a single bagel.

    What I ended up doing, even though I only wanted 4 bagels, was to buy 6 (our Einstein's has an offer of 6 for the price of 5), and a tub of cream cheese, which is enough for 6 bagels with some to spare.

    Amazingly enough, that works out cheaper than buying 4 bagels with the cream cheese already spread on them. The difference is enough for me to have a free coffee thrown in!

    Another benefit is that in spreading your own cream cheese, you can make sure it's spread "just right", not too thick and not too thin, as so often happens if someone else does it in a hurry.