Supply side: It approaches the minimum average total, not marginal, cost. Maybe if people accounted for it finer (e.g., charging self “wages” and “rent”), cooking at home would be in the ballpark (assuming equal quality of inputs and outputs across venues..), but that just illustrates how real costs can explain a lot of the differential without having to jump to regulation and barriers to entry (yes, those are nonzero too!).
Demand side: Complaints in the OP about the uninformativeness of ratings also highlight how far we are from perfect competition (also, e.g., heterogeneous products), so you can expect nonzero markups. We aren’t in equilibrium and in the long run we’re all dead, etc.
I’m a big proponent of starting with the textbook economic analysis, but I was surprised by the surprise. Let’s even assume perfect accounting and competition:
Draw a restaurant supply curve in the middle of the graph. In the upper right corner, draw a restaurant demand curve (high demand given all the benefits I listed). Equilibrium price is P_r*. Now draw a home supply curve to the far left, indicating an inefficient supply relative to restaurants (for the same quantity, restaurants do it “cheaper”). In the bottom left corner, draw a home demand curve (again the point is I demand eating out more than eating at home). Equilibrium price for those is P_h*. It’s very easy to draw where P_h* < P_r*.
Supply side: It approaches the minimum average total, not marginal, cost. Maybe if people accounted for it finer (e.g., charging self “wages” and “rent”), cooking at home would be in the ballpark (assuming equal quality of inputs and outputs across venues..), but that just illustrates how real costs can explain a lot of the differential without having to jump to regulation and barriers to entry (yes, those are nonzero too!).
Demand side: Complaints in the OP about the uninformativeness of ratings also highlight how far we are from perfect competition (also, e.g., heterogeneous products), so you can expect nonzero markups. We aren’t in equilibrium and in the long run we’re all dead, etc.
I’m a big proponent of starting with the textbook economic analysis, but I was surprised by the surprise. Let’s even assume perfect accounting and competition:
Draw a restaurant supply curve in the middle of the graph. In the upper right corner, draw a restaurant demand curve (high demand given all the benefits I listed). Equilibrium price is P_r*. Now draw a home supply curve to the far left, indicating an inefficient supply relative to restaurants (for the same quantity, restaurants do it “cheaper”). In the bottom left corner, draw a home demand curve (again the point is I demand eating out more than eating at home). Equilibrium price for those is P_h*. It’s very easy to draw where P_h* < P_r*.