FancyFoods restaurant decided to introduce an all-you-can-eat buffet on Tuesdays and Wednesdays to increase business. They found that they acquired a whole new set of customers, most of whom are very big eaters. After a time, they increased the price of buffet. FancyFoods suffered from the problem of:

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Adverse selection occurs when one party has more information than the other, leading to the other party making a decision that is not in their best interest. In this case, the introduction of the all-you-can-eat buffet on Tuesdays and Wednesdays attracted a new set of customers who were big eaters. When the restaurant increased the price of the buffet, these customers may have continued to come, leading to increased costs for the restaurant but not necessarily increased profits. This is an example of adverse selection because the restaurant did not have all the information about the customers it attracted with the all-you-can-eat buffet.

FancyFoods Restaurant Decided to Introduce an All-You-Can-Eat Buffet on Tuesdays