Why is iced coffee more expensive than hot coffee?
Assuming cost is the driver of pricing is backwards economics when it comes to industries that are not perfectly competitive, like retail coffee sales. Economic actors (in this case, Starbucks or Dunkin Donuts) do not price to cost, but rather price primarily to demand. So the fact that iced coffee costs more than hot coffee is not a result of the higher costs of making, it is because consumers come to market willing to pay more for iced coffee than hot coffee.
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| Why is iced coffee more expensive than hot coffee |
Producers price their iced coffee to maximize profit -- a maximization that trades off the reduction in demand when prices increase against the increase in per-item profit.
Roughly speaking, they choose the highest possible price that can cover their costs and lock in profit without reaching too high and decreasing consumer demand. If the cost of electricity increases, for instance, making it more expensive to chill all the ice for iced coffee, and producers pass all the increase onto consumers, they risk exceeding the price consumers are willing to pay, which would reduce demand. Instead, they do a more delicate calculation to determine the optimal way to take the cost increase into account.
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| Why is iced coffee more expensive than hot coffee |
The only explanation that presents itself for greater demand for iced coffee is consumer preference. Iced coffee is seen as a sort of a luxury item, something you get on a summer day, such as on vacation, whereas a cup of "joe" is a daily staple that you drink at work.
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