The mysterious market price of lobster

Article by: MATTHEW YGLESIAS , Slate
Updated: August 22, 2012 - 10:29 PM

The dock price of Maine lobster has plunged. But restaurants are still getting top dollar. Why?

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Louie Nault and his son, Sonny, weigh lobsters at a pier in Stonington, Maine, July 26, 2012. An overabundance of lobsters in Maine, attributed to warm water and good conservation techniques, has led to fishermen getting $1.35 a pound, compared with $3.80 last year.

Photo: Chris Becker, Associated Press - Nyt

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STONINGTON, MAINE - The Fisherman's Friend in what passes for downtown Stonington, Maine, is ideally situated for a summertime lobster dinner. The town, at the southern tip of Deer Isle, has a Main Street that runs along the water and is lined with galleries and tourist shops. The town's working harbor is a place for not only recreational boaters but also commercial fishermen. Nearly atop the harbor is the restaurant, with an indoor dining room and also outdoor seating. You can enjoy the view, the sea breeze and a lobster dinner, with the crustaceans offered at market price, which turned out to be $20.99 last week when my father and I ate there.

I'd say it was money well-spent, but some unease still set in. After all, it was only a few weeks ago that the New York Times' Katharine Seelye wrote a Stonington-datelined article about the rock-bottom prices lobstermen were getting for their catch. Indeed, these days the dock price of lobsters is about half of what it was four summers ago.

The mechanism isn't precisely understood -- people think the anomalously warm temperatures in the Gulf of Maine may have something to do with it -- but newly molted lobsters started showing up in coastal waters unusually early this year, and fishermen keep pulling in record harvests. That's led to a collapse in the wholesale purchase price of lobsters and international tensions as Canadian lobstermen seek to keep Maine lobsters out of Canada's lobster processing factories.

Which brings me to the market-price anomaly. It's clear that if you walk into a fish store that the price of live lobsters has indeed fallen sharply. But at the restaurants and seafood shacks that dot the coast, prices have fallen only modestly. Instead, the lobstermen's pain is leading to windfall profits for restaurant owners, fueling dark talk of price fixing in some quarters.

The price of lobster, like the price of anything else, is set in a market. But the market price you pay is fundamentally a price determined by the restaurant market, not the market for lobsters. And the issue is a basic one of capacity and competition.

Think back to the Fisherman's Friend and its excellent location. Stonington is a great place to visit. But it's also a very small town. There aren't very many places to eat. And if it's a certain kind of coastal Maine seafood dinner experience you're after, there aren't any other places in town to go.

No room at the restaurant

Capacity constraints are also an issue. I was a bit taken aback to discover that Fishnet, the classic, fast-food-style seafood joint in Blue Hill, Maine, was selling lobster rolls that were expensive even compared with the wares available in the next town over. But when I went to Fishnet, parking spaces were scarce, the line was long.

In other words, even radically lower prices would do little to increase sales, simply because the restaurant lacks the capacity to serve many more customers.

When lobster prices rise, the market price does rise with them. If the price of lobster spikes, there's no sense in a restaurant selling one at a loss even if you have empty tables. But the ratchet really only goes in one direction. When upward price swings squeeze margins enough, restaurants raise prices. But falling retail lobster prices generate big restaurant profits, angry lobstermen and vaguely disappointed tourists.