The Right Burger Price

A Combo meal–Big Mac, fries, and a Coke–typically averages $9.29. However, many of us believed it was $18 after last year’s post on X because of skyrocketing prices.

Where are we going? McDonald’s price problem became an opportunity for Chili’s.

The Right Burger Price

With McDonald’s a fast food restaurant and Chili’s casual dining a step up, the two usually do not compete. However, reminding us that unlimited chips and soda are a part of their $10.99 burger dinner, Chili’s ads told customers to choose between its Big Smasher and ““just some other burger at a drive-through.” In addition, they said that at Chili’s you can enjoy a $6.99 margarita (maybe until the Mexican tariff hits).

It might be working.

Whereas higher prices are a problem for most firms, Chili’s turned inflation’s lemons into lemonade. In other words, others’ price hikes made Chili’s menu attractive. More than the industry average of 1%, Chili’s sales have been up by 15%.

Our Bottom Line: Elastic Prices

Responding to the impact of tariffs, Five Below tells us it will round down or up. Consequently, a $1.75 nail polish will be $2.00. By contrast, for luxury brand LVMH, it won’t be that easy. If the firm absorbs the tariff expense, profits plunge. But raising prices could shrink sales.

That takes us to the art of finding a new price point. Down from 15 to 13, toymaker ZURU is shrinking the number of self-sealing water balloons in its packages. At the same time, though, they think customers will accept a Fugglers stuffed animal hike from $7.99 to $12.99. Somewhat similarly, a grill brush company concluded their customers would pay $29.99 for a brush that had been $24.99. Citing consumer psychology, the company found less success with $27.99.

You can see what is happening.

As economists we know that everywhere firms are debating elasticity. If price changes a lot and the quantity we buy remains almost the same, then the quantity we demand is inelastic. By contrast, if price swings have a big impact on what we buy, then our response is elastic. With tariffs, firms hope to discover their inelastic sweet spot.

A Cincinnati TV station did some price comparisons:

Returning to where we began, with the impact of tariffs, we can ask the right burger price?

My sources and more: Thanks to WSJ for inspiring today’s post. From there, we checked McDonald’s prices, here and here, and found a combo meal was $17.59 in Darien, Conn. Next, that took us to WSJ’s setting the right price.