Well, something would have to give somewhere if the culture of tipping changed. (Sort of a moot point because the gradual change is in the direction of higher tips.) It'd be a mix of both: attempting to charge higher prices to customers and attempting to pay the staff just enough to not lose the workforce needed to operate the restaurant. He'd be jacking with both the labor demand curve and the demand curve for his own product. (He'd find out fast which one was more elastic!)

At this point, I've resigned myself to the fact that the tip is so culturally ingrained that it's effectively embedded into both of these demand curves. The waiter at a star-rated restaurant got there in theory because he's the best at his craft. The kid at Applebee's probably doesn't have the same abilities, but may later acquire them. If I tip them both 15-20% when I receive normal service, then I figure I'm participating in this particular economy in the way that's expected of me.

Some might say "Who cares if the waiter at Charlie Trotter's is any better than the one at Applebee's? I'm just there for the food." I do care...and I think most people who eat at an outstanding restaurant do. Enough people care that those are probably difficult jobs to get, typically staffed by very good professional waiters, and hopefully they're paid well for it.

If I get awful service, that's another story. I've left 0-10%, spoken with the manager, and even had cases where I didn't pay for a meal. This is another category aside from our general culture of tipping...gets into what your general reaction to getting a bad or broken product of any kind is.