Will Businesses Accept Lower Margins? Will Consumers Accept Higher Prices?

The debates are raging about how to open up the economy.  The next few weeks and months will certainly be interesting as states take different approaches to bringing businesses back online. 

One thing that is clear is physical distancing will remain in place at least until there is a therapeutic treatment or vaccine that is widely available.  For many consumer facing businesses, physical distancing is going to pose incredible challenges not only logistically but economically.  Think about a restaurant that has a maximum capacity of 100 people.  Can it make money if that maximum capacity is 50 people for the foreseeable future?  Does it accept lower margins associated with lower occupancy?  Do consumers accept limited service or limited menus?  Do consumers accept higher prices as a result of restaurants trying to spread fixed costs over a smaller number of patrons?

During this shutdown, many restaurants have offered free delivery.  Nothing is free; restaurants are subsidizing delivery fees in order to keep some revenue coming in while their physical locations are closed.  In other words, they have accepted lower margins during the crisis.  Only time will tell if that will continue.  Will consumers pay a fee if restaurants decide not to subsidize delivery?

From a macroeconomic perspective, the US has been a consumer driven economy since World War II.  The US consumer has been the engine for world economic growth for the last 85 years.  God help the world economy if the US consumer does not return to profligate spending soon. 

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