Jeffrey Miron and Erin Partin
2020 was a challenging year for the restaurant industry. The National Restaurant Association reports that 17 percent of restaurants in America have closed, with many more on the brink of failure. Restrictions on capacity and indoor service during the coronavirus pandemic forced many restaurants to pivot to a carry‐out or delivery model.
For restaurants without a pre‐existing, self‐run delivery system, delivery systems like DoorDash and GrubHub were critical to reaching customers. These services publicize restaurants, process orders, and deliver food via independent couriers. These companies remain profitable by charging restaurants and customers fees for this convenience.
However, lawmakers around the country have begun to crack down on what they consider unreasonable fees. Los Angeles, New York City, Seattle, Chicago, and Washington, DC are among the cities that have imposed caps on the fees that delivery services can charge. These caps are misguided.
Introducing price controls will disincentivize delivery services from partnering with low‐volume or remote restaurants, from increasing contractor pay, or from improving service. To make up for the revenue shortfall from restaurant fee caps, DoorDash and GrubHub will likely increase delivery and service fees for customers, which will then reduce demand for these services and ultimately harm restaurants.
Trying to protect restaurants while increasing costs to consumers is thus short‐sighted. Many restaurants have failed, and many more will. Fee‐limiting policies targeting the delivery middlemen will at best prolong the inevitable and more likely hasten that outcome.
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