BUSI 700 Week 3 Group DB Forum 2 Example

Group Discussion Board Forum 2: Thread, Group Presentation and Reply

BUSI 700 Doctor of Business Administration Orientation, Group Discussion Board Forum 2 (thread, group presentation and reply)

Thread by [Student Name]

The prompt, the city proposal, the group and the classmates are composites standing in for the course's own; the economics text and the published study are real; the requirements follow Liberty's public course guide for BUSI 700.

The prompt asked each of us to choose a current policy proposal and analyze it with at least three key elements from Common Sense Economics. I chose a proposal before our city council to cap the commission that delivery apps charge restaurants at 15 percent of each order's value. Supporters are local restaurant owners who say commissions of up to 30 percent leave them losing money on delivery orders, and the concern is real. New York City adopted a similar cap in 2021, so the idea has been tried.

The first principle the book teaches is that incentives matter (Gwartney et al., 2016). A cap changes the incentives of three groups. Apps earn less from each order and will look for revenue elsewhere. Restaurants keep more of each delivery sale and may promote delivery more. Diners face whatever new prices the apps choose.

The second principle is that there is no such thing as a free lunch. A cap does not make the cost of delivering food disappear; drivers, software and marketing still must be paid. It moves the cost from restaurants to someone else, most likely to diners through higher service fees or to drivers through lower pay. A price control decides who pays, not whether anyone pays.

Third, decisions are made at the margin. An app will continue serving a restaurant only if the commission covers the cost of each additional order. Under a cap, low-volume restaurants in outlying neighborhoods, where each delivery costs more, are the likeliest to lose promotion, delivery radius or service altogether, which could hurt the small businesses the cap is meant to protect.

Finally, the book warns that policies have secondary effects that are easy to overlook. Research on a different price control shows how this happens. Diamond et al. (2019) studied what happened after San Francisco voters, in 1994, brought older two-to-four-unit buildings under rent control. Covered tenants were more likely to stay put and benefited, yet owners of the newly covered buildings took about 15 percent of those rental units off the market, many through condominium conversion or redevelopment, and the lost supply pushed up rents for everyone else in the city. The same pattern could appear here if apps shrink service in the capped city.

A further secondary effect concerns quality. If apps cannot raise revenue from restaurants, they may cut costs where diners notice least at first, such as fewer drivers on the road at peak hours, which lengthens delivery times and cools the food. Restaurants could then lose customers to competitors that handle their own delivery, the opposite of what the cap intended.

My conclusion is that a commission cap helps restaurants in the short run but may shift costs to diners and drivers and reduce service where restaurants are most fragile. A rule requiring apps to disclose all fees to restaurants and diners would address the bargaining problem with fewer side effects.

Group Presentation (posted to the class-wide forum)

Group 1 analyzed a proposed city cap of 15 percent on the commissions delivery apps charge restaurants. Using Common Sense Economics, we found that the cap responds to a real problem, restaurant margins on delivery orders, but that its effects depend on incentives the proposal ignores. Because delivery has real costs, the cap shifts them rather than eliminating them, most likely to diners through service fees and to drivers. Because apps decide at the margin, outlying, low-volume restaurants are most at risk of reduced service. Research on San Francisco's rent control expansion shows that price controls can shrink the supply of the thing they protect. Our group recommends that the council consider fee transparency rules and a one-year review with data on restaurant delivery sales, customer fees and driver pay before adopting a permanent cap.

Reply to Group 3

Group 3, your presentation argued that a proposed $20 state minimum wage for fast-food workers would raise living standards with little cost because large chains can absorb the expense. Your use of the book's point that people earn income by helping others was a thoughtful way to frame the dignity of the work, and I agree that many fast-food workers struggle to cover rent.

I would add the principle of secondary effects that our group used. A higher wage floor changes the margin on which employers decide how many workers to schedule and whether to invest in ordering kiosks and other labor-saving tools. Chains may absorb some of the cost, but they may also raise menu prices, shorten store hours or slow new store openings, effects that are harder to see than the higher paychecks of workers who keep their jobs. None of these outcomes is certain, which is why evidence matters. A useful test would compare employment, hours and menu prices in the state's fast-food restaurants with those in a neighboring state over the year after the law takes effect. Would your group accept the policy as successful if wages rose but total hours worked fell?

References

Diamond, R., McQuade, T., & Qian, F. (2019). The effects of rent control expansion on tenants, landlords, and inequality: Evidence from San Francisco. American Economic Review, 109(9), 3365-3394. https://doi.org/10.1257/aer.20181289

Gwartney, J. D., Stroup, R. L., Lee, D. R., Ferrarini, T. H., & Calhoun, J. P. (2016). Common sense economics: What everyone should know about wealth and prosperity (3rd ed.). St. Martin's Press.