A $105,000 Bar Tab?
This article in the WSJ about someone racking up a $105,000 bar tab at a club in Dubai caught my eye:
Here is a list of items on the bill:
– One 6 liter bottler of Cristal Champagne – $35,000
– Two 2-liter bottles of Cristal for $19,000
– 13 Bottles of Roederer Cristal for $23,000 (or about $1,800 each).
– 24 Diet Cokes at $6 each.
– 10 Red Bulls at $7.80 each
– One 3 liter bottle of Cavalli vodka at $1,341.
– Four bottles of Chivas for $1,181
The cake slice was the bargain of the night, coming in at only $32.”
After finishing my undergrad thesis I bought a bottle of Roederer Cristal for $200 at a liquor store. Here is a link to POV’s bottle service menu, an open air lounge at the W hotel in Washington that’s pretty swanky http://pointofviewdc.com/menus/new/Bottle-Service-Selections.pdf. They list a bottle of Cristal at $560 (presumably Roederer). According to this Harvard Business School study a bottle of Cristal at Marquee, a club in New York renown enough to have an HBS study dedicated to it, is $900 (http://www.noahtepperberg.com/wp-content/uploads/Harvard-Business-School-Case-Study.pdf).
So here is the economic question: economic theory indicates that in a market with no barriers to entry like the market for bars/clubs, no firm will be able to make above persistent above market returns. This means that at places that charge higher prices for the same product, ie a bottle of Cristal, these clubs must also be offering some other service, that is sufficiently costly to negate any extra profits earned by charging more for Cristal. So what services is this club in Dubai offering to justify prices double that of Marquee? Or is the cost of doing business in Dubai just that much higher than it is in the US?