Why do restaurants rely on tips instead of a flat wage to compensate waiters and waitresses? Why not build the cost of service into menu prices? Because restaurant customers don't appear to take tips into account when they judge how expensive a restaurant is, finds a new study from the Cornell Center for Hospitality Research.

Cornell researchers Shuo Wang, a doctoral candidate, and Michael Lynn, both of the Cornell School of Hotel Administration, used an Internet-based simulation that allowed 318 participants to make food selections from four hypothetical restaurants, each of which used tipping, service charges or menu prices that included service charges. After the participants saw the final bill, if it included a service charge or inclusive pricing, they rated the restaurant as more expensive than if they had added a tip.

While the study was a simulation only (and no money was at stake), the industry's long-standing practice of setting menu prices without service charges is supported by these findings, said Lynn, an associate professor of marketing.

"We concluded that our participants were generally using menu prices -- and not the total bill -- as their guide for how expensive they viewed our simulated restaurants," said Lynn. "Thus, it seems to us that only restaurants with price-insensitive customers can adopt service-inclusive pricing without risking the loss of customers."

The study, "The Effects on Perceived Restaurant Expensiveness of Tipping and Its Alternatives," is available at no charge at http://www.hotelschool.cornell.edu/chr/research/centerreports.html.