Icing Pricing

I've always been fascinated at how prices are set. I know about supply and demand, but someone at street level has to decide exactly how much a product costs.

I was walking around Westwood over the weekend and passed Stan's Donuts and Diddy Riese, just a half block from each other.

Stan's is a hole-in-the-wall sort of place, yet has arguably the best donuts in town. (It regulary wins awards as such.) But quality doesn't come cheap, and a fancy donut there can cost two bucks or more. When I walked by, it wasn't crowded.

Meanwhile, Diddy Riese was doing line-out-the-door business. And seeing the prices I could tell why. You can get three chocolate chip cookies for a dollar (take that, Mrs. Fields) and their famous ice cream sandwich (made with two cookies) for a buck.

Both places have been open for years, so I assume they're both doing well. But starting with the same basic ingredients, it struck me how one is much lower than the market and one is higher. Can donuts really be worth that much? Can really cheap chocolate chip cookies be worth it?