The average tip at most fine dining restaurants in American cities is between 18-25%, so a fixed 23% service charge instead comes out about even on cost.

I don’t know what it’s like at this restaurant, but most places that have a fixed gratuity make it fairly obvious, to avoid exactly the situation you raise.

No, it is instead of tipping. That’s what they mean by “in lieu of”.

The question about prices is a good one, and the answer is that you can’t just raise prices when most other restaurants don’t include gratuity. It would just seem like your restaurant is much more expensive than everyone else.