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Pricing Power at the Bar

What if drinks traded like stocks or commodities futures? In other words, what if their prices fluctuated depending on outlook, desirability, supply and demand?

After all, a fixed price menu is price fixing, and that is Un-American! Now, one eatery is having fun with real-time pricing—the D Street Bar and Grillin Encinitas, California.

According to Freakonomics, the bar changes pricing on alcoholic beverages based on demand. The more a drink is desired, the higher the price and vice versa.

Drink Exchange Ticker
Source: Freakonomics.com
Drink Exchange Ticker

"It seemed that if a drink wasn’t ordered in a 15-minute time span the drink would go down a few cents," writes reader Thomas Barker. "When we showed up my friend had his eye on an irish car bomb which was over $5 at the time, in the hour or so we were there it went down to his target range of about $3.75." That's when the friend ordered one, and then the price "jumped back up over $4."

Barker provides a picture of the “Drink Exchange” being shown on TV screens around the bar, displaying current drink prices, plus daily highs and lows. For example, the Fat Tire Draft at that moment was selling for $3 a glass, down 40% from the high of $5, but up from the low of $2.75.

Great idea? For bar owners, it could help level out inventory, as people move around from drink to drink, always chasing lower prices. It might also have an impact on traffic, as some people come into the bar during slower periods specifically to take advantage of lower prices. Call it Happier Happy Hour.

For consumers, however, this means you probably shouldn't order two rounds of the same thing for all your friends within an hour or, as Barker notes, the second round may be "significantly higher" and you could be surprised by the tab. Also, do you want to chase low prices moving from beer to wine to tequila? If so, you are made of tougher stuff than I am.

This real time flexible pricing probably works better in a bar than in a restaurant. Alcoholic beverages have high margins, allowing an owner to play with prices and still make a profit. Food costs are higher and the margins are thinner. Where else might this idea work? Hmmmm. How about baseball games?

If a game is lightly attended, why not lower prices the closer you get to throwing out the first pitch? Lower them during the game? This would be great for sports fans in Los Angeles, a city where most people show up to sporting events at the halfway point and then leave 45 minutes later to avoid traffic. Maybe team owners could give fans a discount if they promise not to leave early. It looks bad on TV.

Any other ideas? Submit them in the comments section below.

Meanwhile, back to the bar (a line I use not infrequently), instead of actually choosing which drinks to buy based on prices, too bad you can't just trade them based on how well they’re performing.

For example, given the image of the Drink Exchange screen on Freakonomics, looks like I'd better cover my short position on the Irish Car Bomb. Then I think I'll double down on the Fat Tire--because I'm a believer.

Questions? Comments? Funny Stories? Email funnybusiness@cnbc.com

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  • Based in Los Angeles, Jane Wells is a CNBC business news reporter and also writes the Funny Business blog for CNBC.com.

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