Beef suppliers who supply meat to the major fast food restaurant chains have organized a protest in nearly 100 cities across the US to demand that the restaurants double the price they pay for their beef purchases.
Economists, and observers with even one iota of common sense, cautioned that such an increase would actually harm the beef suppliers. In response to a doubling of the price of such a vital input (without any increase in the value it adds to the finished product), the restaurants could respond in one of three ways:
- Attempt to pass along the increased costs to consumers in the form of higher prices, in which case demand for hamburgers would decline and as such the fast food restaurants would either go out of business or downsize their operations. In either case, the end result would be far less beef being purchased.
- Keep the prices of their burgers the same, but reduce the amount of beef they purchase by making the sandwiches smaller (i.e. the quarter pounder becomes a fifth-pounder), or reduce or eliminate burgers from their menu and substitute that with an increase in other selections like chicken and fish sandwiches. In either case, the end result would be far less beef being purchased.
- Or, they pay the inflated cost for beef, keep prices of hamburgers the same and don’t reduce the burger size or substitute burgers with more chicken and fish. Instead, they absorb the added costs and see their profit margins drop. In this case, because capital is mobile, as profit margins in the fast food industry shrinks, investment in the industry will also shrink and move to other industries where the return is greater. As a result, the fast food industry is reduced, and the result would be far less beef being purchased.
As you can see, by demanding a major increase in the price of the product they supply to the fast food restaurants, the beef suppliers would bring harm to themselves as any possible scenario would result in far less beef being purchased. Many people would lose jobs and be forced into other lines of work in which they are likely less qualified for and as such would receive lower wages than they did working as a beef supplier.
Any rational thinking person would be hard pressed to object to the above analysis.
Of course, however, there is no protest by beef suppliers, but instead there is a protest today by suppliers of labor to fast food restaurants – seeking to nearly double the price the restaurants pay for their labor. To know what the impact would be, simply substitute suppliers of labor for beef suppliers in the above scenario, and it is easy to see why the protesters should be careful what they wish for.