Business Strategy and the Social Norm of Tipping

32 Pages Posted: 10 May 2011

See all articles by Ofer H. Azar

Ofer H. Azar

Ben-Gurion University of the Negev - Guilford Glazer Faculty of Business and Management

Date Written: May 10, 2011

Abstract

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

Suggested Citation

Azar, Ofer H., Business Strategy and the Social Norm of Tipping (May 10, 2011). Journal of Economic Psychology, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1837142

Ofer H. Azar (Contact Author)

Ben-Gurion University of the Negev - Guilford Glazer Faculty of Business and Management ( email )

P.O. Box 653
Beer-Sheva, 84105
Israel
+972 8 6472675 (Phone)
+972 8 6477691 (Fax)

HOME PAGE: http://www.oferazar.com

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