In last week’s Bulletin I discussed the value of Taiwanese goods by calibrating American and Taiwanese wages. We briefly mentioned that luxury or branded goods such as Bottega Veneta, iPods, and Twix Bars, offer little currency or regional discount. Before I go any further, let me clarify that most luxury goods generally have an elastic demand, meaning demand for these products are price-sensitive such that a 1% increase in price would decrease demand by more than 1%. If you were to suddenly lose your job, you would still buy a bag of potatoes to feed your family, but there would be no iPods under the Christmas tree that year. However, one reason why luxury and branded goods need to maintain prices worldwide is to signal to consumers that their product is a superior good. A superior good like a Ferrari is actually in higher demand when incomes rise, versus an inferior good like a Pinto. All the cool kids drive Ferraris, and there are still enough rich people out there in the world to justify an unbudging price for luxury goods.
Relating this back to Taiwan, let me use these concepts to explain another type of good/service that many ICLPer should have some familiarity with: bottle service at night clubs.
Yes, you might not want to admit it to your parents, most of you have ventured into a club some point during your stay here. I’ve lived in New York, one of the most expensive cities in the world, so I have some authority in saying that this type of fun in Taipei can certainly take your wallet for a ride. Almost every club requires some sort of cover fee in order to get in, usually in the range of $700 - $1,000 NT ($23 – 32 USD) if you don’t come in with someone who booked a table. I once snarled at someone when told to fish out $25 USD to enter some Meatpacking District club’s hallowed grounds. There’s no way that Taipei is cooler than New York (sorry), but because clubs here throw in 2-3 drinks on the house, that dulls the rage and eventually gives us a nice buzz.
What does this have to do with Economics? Utility. Utility is the advantage or fulfillment that a person receives after consuming a good or service, and influences how the demand curve is shaped. People are willing to pay a lot of money for something because they gain a lot of utility or happiness in return. How much are you willing to pay for a drink? How much does it take for you to not have a care in the world? For most low-alcohol tolerance Asians, 2-3 drinks will do the trick, which is probably how clubs came to their cover price of $700 - $1,000 NT (drinks usually go for $250 – 300 NT). Forcing club goers to pay any more than that would lead to decreasing marginal utility, the decrease of additional happiness with an additional drink. That would be very bad for business and quite understandable with alcohol, because at some point there’s real pain involved. However, that still doesn’t explain why clubs in Taipei can charge as much as they do in New York.
No one will deny that the whole appeal of night clubs revolves around the concept of status, which lends a large amount of utility to many people. Why else would people glam up and bathe in pungent cologne? Why else do people book tables? Why else do some bottles come around with fire sparklers and a parade of disgruntled, costumed bartenders? The whole clubbing experience in Taipei is indeed a superior good, meaning the more income you earn the more likely you will order bottle service at a club, which thus aptly priced with a minimum tab of $15,000 NT ($477 USD). However, the real crux is that if you look carefully, in a whole section of popular nightclubs frequented by foreigners, expatriates more often book tables than local Taiwanese.
Currently, Taipei is flooded with enough expatriates to justify a number of clubs that charge New York prices. Several years ago, Taipei only hosted a wave of summertime ABCs, so there were only a few clubs around to meet that demand. Expatriates often are those “rich” kids that can afford superior goods in Taiwan, and partying at clubs provides them enough utility to rationalize exorbitant prices. $10,000 NTD for a Moet champagne bottle? $6,000 NT for a Grey Goose vodka? Those go way beyond normal $700 NT cover fees, but what these patrons pay for isn’t the alcohol buzz, but the fawning doe-eyed groupies, the strategic location of the table, and believing that you are the life of the party. That makes many people very, very happy. It doesn’t hurt that they also have the money to pay for that additional utility.
Now imagine a mass deportation of all expats in Taiwan. The elastic demand of a superior good such as bottle service would spell utter devastation to a whole subsection of Taipei’s night club industry. To reverse this, Taiwanese income would have to rise ($17,273 USD vs. the United States with $47,576 USD GNI per capita). Or, Taiwanese alcohol tolerance would have to increase so justify paying for additional utility (buzz). Both seem extremely unlikely in the near future. So there you have it, my economic take on why bottle service in Taiwan remains king, and we have our cohorts to thank for it.