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I just came from a coffee place with tipping and now I'm in one without tipping... prices are higher, but there is not tipping. It's not obvious why some places get rid of tipping and others don't. I guess you want the server to be incentivized by the possibility o tipping to give outstanding, charming service. What other considerations are there?

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Interesting question. Michael Lynn, prof at Cornell, works on Consumer Behavior and Tipping. According to him, some restaurateurs may rely on tips to

  1. motivate servers to deliver good service,
  2. measure server performance, and
  3. identify dissatisfied customers.

All of those uses of tips assume that service quality has a large effect on the size of tips that consumers leave. He examines and challenges that assumption in his meta-analysis on Restaurant Tipping and Service Quality. He finds a tenuous relationship that can be depicted in the following figure, which is based on one surveyed paper.

enter image description here

Then, the question is: what does explain the change from tipping to no-tipping service? My answer is unfortunately more opinion-based than fact-based. It could be that

  1. managers are aware of this low correlation and want to experiment a different management based on a fixed payment instead of a variable one;
  2. due to the financial crisis customers tip less than usual and so managers have to fix the tip to offer better (fixed) wages and attract good waiters.

Update: Note that the no-tipping strategy may have some drawbacks:

  1. Attrition. Servers may change to tipping places in order to get higher wages

  2. Higher prices may lead to lower demand by some customers.

More on the following nice NPR podcasts on

  • Why Restaurants Are Ditching The Switch To No Tipping. The idea of the no-tipping movement has been to rectify a basic pay unfairness to even out the pay between tipped and untipped employees. Why are they switching back to tipping? Attrition. They were losing staff, servers mostly.

  • Why Do We Tip?. You can listen to Michael Lynn on this podcast.

  • The No-Tipping Point on Freakeconomics Radio. Interesting questions on How much would the restaurant have to raise prices in order to pay its waitstaff what they were losing in tips? How much of a raise would kitchen workers get? Would servers now earn a lot less? And if so, wouldn't they all just quit? Would customers get the service they were used to if they didn’t retain the leverage of the tip?

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  • $\begingroup$ Tenuous relationship? A strong correlation looks more or less like a straight line. This plot, when you ignore a few outliers, looks more or less like a box full of random dots, which shows a strong lack of correlation. $\endgroup$ – Mason Wheeler May 26 '16 at 21:23
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    $\begingroup$ "A tenuous relationship" as used by the author means a thin, fragile or weak correlation. $\endgroup$ – emeryville May 26 '16 at 21:34
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You can also think of a restaurant interaction as a repeated game. In that case, tipping well in the first interaction might yield good service in the second and following interactions.

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