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Small businesses follow big chains’ lead on pandemic closures, research finds

Closed due to coronavirus
Photo: Gwengoat for Getty Images

From the earliest days of the coronavirus pandemic, local shops, restaurants, and other small business have struggled with how best to respond to the ever-changing crisis.

A new Berkeley Haas study found that when it came to closures, the big chains set the tone: In the first few weeks of the pandemic, local businesses not affiliated with a chain were more likely to close their doors if competing chain outlets in the same ZIP code shut theirs.

The study, based on cell-phone location data and published in the journal Management Science, sheds light on how businesses influence each other through “social learning.”

And while the focus was on business closures, “the key lessons are applicable to some of the questions businesses are grappling with now,” such as whether to impose mask or vaccine mandates or let employees work from home, said co-author Mathijs de Vaan, an assistant professor of management at Berkeley Haas.

The researchers, who included Berkeley Haas professors Sameer Srivastava and Abhishek Nagaraj along with PhD student Saqib Mumtaz, used anonymized cell-phone tracking data to determine whether local and chain establishments were open or closed each day between March 1, 2020— just before local governments began issuing stay-at-home orders—and April 15, 2020.

“Many of these directives were ambiguous or not enforced, leaving business owners with latitude to interpret the guidance as they see fit,” the authors noted.

Business owners had to make unprecedented closure decisions not knowing how their customers and employees would react. The situation was so uncertain that going into the experiment, the team couldn’t predict whether the closure of a chain store would cause an independent business nearby to do the same or remain open for competitive reasons.

“If I’m a small business owner, it’s not so straightforward what I should do,” de Vaan said. “If the big guy stays closed, maybe I can make more money. Conversely, maybe the big guy is better equipped to know” the right response.

The researchers analyzed daily visits to 230,403 local businesses that were in the same industries and ZIP codes as chain outlets affiliated with 319 large national brands. They focused on service-oriented outfits such as retail shops, restaurants, movie theaters, and gyms, and excluded industries deemed essential, such as grocery stores and gas stations.

The team tried to control for other local variables that could cause establishments to close, such as shelter-in-place orders, local infection rates, or demographics. “Interestingly, we found the decisions of these branded chains were uncorrelated with the local Covid conditions,” de Vaan said.

In a typical example, the researchers looked at fitness centers in two neighboring ZIP codes in Collin County, Texas, on March 25, 2020. One ZIP code had an Orangetheory chain gym that was closed, while the other had an Anytime Fitness chain location that was open. They found that all six local gyms in the same ZIP code as the closed Orangetheory were closed, while three out of five local establishments in the same ZIP code as the Anytime Fitness were also open.

Looking at all industries and locations nationwide, they estimated that if a chain store closed one day, a competing community business in the same ZIP code was, on average, 3.5% more likely to close the next day. That may not sound like a lot, but that’s just the daily level. “If you accumulate 3.5% across days and establishments and places, it adds up to be a fairly consequential effect in a town that may have hundreds of businesses,” Srivastava said.

The researchers concluded that, “if you don’t have clear-cut information, you are going to look at people around you,” de Vaan said.

Given that local governments are unlikely to mandate vaccines, “it creates an arena for social influence to pop up,” de Vaan said. If a large company required vaccinations, small competitors have to decide whether following suit would cause them to gain or lose customers and employees. Based on their findings, de Vaan predicts that small businesses would be more inclined to follow suit, but cautions that they didn’t study that question.

“Perhaps most importantly,” the authors concluded, “this paper shows that when government directives and health guidelines are ambiguous, firms will look for other information to guide their decision making. Obviously, such ambiguity may have been intentional if local governments believe that firms are well positioned to make these important decisions. But if one assumes that this is not the case, policy makers and local governments should consider the consequences of a lack of clarity and precision in their directives.”


Study: Ride-sharing apps cut alcohol-related traffic deaths by 6%


Ambulance accident scene
Photo: LSOphoto for iStock/Getty Images

A new analysis finds that the ride-sharing platform Uber has reduced overall U.S. traffic fatalities by about 4% overall, and cut alcohol-related traffic deaths by over 6%. That represented about 494 fewer deaths in 2019 alone—about 214 fewer of them from drunk-driving, according to the study.

The National Bureau of Economics Research working paper, Uber and Alcohol-Related Traffic Fatalities, is co-authored by Berkeley Haas Prof. Lucas Davis and Michael Anderson, UC Berkeley professor of Agricultural and Resource Economics.

Davis and Anderson revisited past studies on the impacts of ride-sharing that were based on traffic accident trends when Uber and other ride-sharing companies first began operating in various cities. Those studies had inconsistent, often contradictory results, and the researchers suspected that the publicly available data was not detailed enough to show the true impacts of ride-sharing.

Their new study is based on proprietary data the researchers obtained from Uber on monthly rides from 2012 to 2017 for all 70,000 U.S. census tracts, combined with National Highway Traffic Safety Administration (NHTSA) data on all fatal U.S. traffic accidents from 2001 to 2016.

The data allowed for a more granular analysis: Since Uber is far more popular in some areas than others, they found that prior publicly available data explained less than 3% of the census-track variation in ride-sharing. After crunching the new data, the researchers estimated that by 2019, Uber rides cut traffic fatalities by about 6.1% overall, and cut alcohol-related driving deaths by about 4%. Davis and Anderson found that the effects were even larger during nights and weekends—as expected.

Last year in the United States, there were 42,000 traffic fatalities, with total economic damages approaching half a trillion dollars, Davis said. Based on estimates of the value of statistical life, the annual life-saving benefits from ride-services range from $2.3 to $5.4 billion. Lyft was just getting started during the study period, but the impact would presumably be even larger if data from Lyft were included in the analysis, he said.

”I’m excited about the potential for ride-sharing, automated vehicles, and other new technologies to reduce this staggering loss of life,” Davis said.

The research was highlighted in a Wall Street Journal op-ed on Friday.