Business Strategy and the Social Norm of Tipping
32 Pages Posted: 10 May 2011
Date Written: May 10, 2011
Tipping is an important economic phenomenon, involving about $47 billion a year in the US food industry alone, and trillions of dollars across different occupations and countries over the years. Moreover, tipping is a major source of income for millions of workers. This article discusses the implications of tipping for business strategy in the relevant industries. For example, firms can choose to impose a compulsory service charge in lieu of tipping – what are the advantages and disadvantages of doing so? How does tipping change the profit-maximizing level of investing in screening job applicants, training workers, monitoring them, and providing performance-based incentives by the firm? Can industries such as the music industry use tips (i.e., prices being voluntary and determined by the customers) as an alternative business model?
Keywords: tipping, social norms, business strategy, service industry, restaurant industry
JEL Classification: M10, M50, D03, D10, L80, Z13
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