Sunday, June 13, 2010

Pizzaconomics...

Well... after what can be described as an indefinite break from almost everything in life, I am back to publish a little tidbit of a post- please don't deride me if the subject is not to your taste (no pun intended), as it is about arbitrage opportunities in pizza (or Canadian Pizza, to be more precise :P). So before people begin throwing tomatoes at me and calling me a right c*nt, I will try to explain in more detail.

ar·bi·trage(ärb-träzh)
n.
The purchase of securities on one market for immediate resale on another market in order to profit from a price discrepancy.
intr.v. ar·bi·traged, ar·bi·trag·ing, ar·bi·trag·es
To be involved in arbitrage.
[Middle English, arbitration, from Old French, from arbitrer, to judge, from Latin arbitrr, to give judgment; see arbitrate.]

That is the dictionary meaning of arbitrage- it's a fancy way of saying that I've gotten a free lunch. So this adventure begins with me trying to get a decent dinner, when I stumble upon the two rival pizza joints (Pizza Hut and Canadian Pizza) right opposite each other. The CP joint had an air of absolute neglect, while the PH joint seemed very well done. Through prior experience, I decided that Pizza Hut would be injurious to my pocket so I decided to go for the Canadian Pizza offer. I looked at the pricing list (or "Menu") and then saw the deals. This is what confronted me:


Buy one get one free offer

1) 10" Regular - $23.90
2) 12" Medium - $31.90
3) 14" Large - $37.90

Getting one pizza has a thirty percent discount!!


So a quick calculation on the Large revealed that I would be loosing approximately $12 ( I then refined the calculation to $11.37 while deciding whether I should go for it). So one large pizza would work out to be $26.53. I also realized that the outlet only took cash. On the way to the atm, I worked out that 2 regular pizzas would yield an area of 50(pi) inch sq. I also worked out that the larger 14" would yield an area of 44(pi) inch sq. Now I realized I would get more pizza by paying less if I choose the 10" option. The N.P.A.P (Narayan Pizza Arbitrage Parameter, which is defined as cost of pizza per unit area of pizza)showed the following:

2 regular pizzas: 0.1521
1 14" pizza : 0.1723

Thereby a clear arbitrage opportunity exists in the said Canadian Pizza outlet and thus should be exploited until the opportunity disappears. But since sales (similar to liquidity) is low (it looked like a warehouse really! :P), I doubt this will happen! :D

P.S- I know it is an arbitrage opportunity of 2 cents per sq.inch :D

I also know it's not exactly an arbitrage as well, but somewhat poor pricing :D

10 comments:

  1. it took me juz the first 2 lines to identify the writer!

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  2. LOL, Jambu and his finance can produce any wonders. This article is damn funny and different from his usual nerdy stuffs. Hence, I like it.

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  3. Lol, Jambu...u just keep moving up on the 'Nerd meter' with ur every post dude!!! :D

    Anyways, just to share with u, here in the US, there's a place called Cici's Pizza, Their speciality: an ALL U CAN EAT BUFFET complete with salad, soup, pasta, all the different varieties of pizza, and desserts....all for USD4.49!!! Not bad, huh? I went there last week and it was awesome!! They have so many varieties of pizza...not to mention, 4 varieties of desserts!!!;)
    OK...i shall stop now..before u come after me for causing u guys to salivate over ur lappies..:D

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  4. Well gents- thanks for the compliments and remarks- I hope I haven't made too much of a sauce of it.

    To the only lady who deigned to comment to the author of this post-
    Salivation (also known in the vulgar tongue as drooling) is something that mangy curs, picked off the street do quite successfully. In effect you have called me a dog with mange. I resent it and deeply condemn the attacks on my person, even though it was done in an electronic format. I demand an apology and an immediate withdrawal of the statement.

    (Just kidding- have all the pizza you want and become a little beachball yourself! I am not sure if that is jealousy talking! Hahahaha :D)

    P.S @Powergal- where are you put up anyways in the US?

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  5. HAHAHAHAHAHA........... :D

    I'm not going to gorge on stuff and become a 'little beachball'!!! Its more of Anbu thollai...where ppl force me to eat..:D And I'm kinda experimenting of different cuisines....plus these people have made me turn into full fledged carnivores so a bit of weight is definitely inevitable......:D

    I'm in Atlanta right now at my aunt's...was in St Louis last wk with my uncle...went to Chicago with him to see the ARR Jai Ho World Tour Concert..;)

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  6. P.S. I refuse to apologise and withdraw my comment btw...:DD

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  7. did you mean cant? immanuel cant? why cant you? :P
    impressive. this does bring some ideas of the put option and the bond market, had you tried to include them in your post, it would have been awesomer(sorry, for killing english by using this word).

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  8. @ gautham- am not sure whether Pizza pays interest! :P So a bond market would be out the way. Moreover, how do measure the internal rate of return of the pizza (waist size? ). And well, I am not sure whether I can have an agreement with the pizza dude for coupons of pizza- he will give me bits of tomato sauce and essence of vegetables for coupons and a thumb-sized bit of bread- moreover the pizza would have turned stale :(

    Unfortunately pizza prices/sizes are not volatile enough for buying an option on them :(
    A call option on them would have been really awesome- but the price/size has remained pretty static.

    As for dear old Immanuel- I used a small C and not a capital one :P

    But as for the bond market- I am in FI :D

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