The Chick-fil-A Situation and an Economics Lesson

The economics lesson will come in a moment, but first I want to talk about the situation more generally. But before doing so let me quickly reveal my biases. I am decidedly in favor of same-sex marriage. I have a lot of gay friends. I walked in Seattle’s Gay Pride parade this year. I follow George Takei on Facebook. It’s pretty much the only issue that informs my vote — not the economy, or healthcare reform, or foreign policy. I’ve never heard an argument anywhere near cogent for denying this right to same-sex couples. I also don’t remember having ever eaten at Chick-fil-A — I don’t even know where one is if I wanted to. I will certainly not be eating there in the future.

But as always our discussion of the situation lacks the clarity and precision I prefer. First, let’s state what is obviously true. Chick-fil-A did not donate money to anti-LGBT organizations. “Chick-fil-A” is an abstract human conception. It cannot donate money, just as the table in my dinning room cannot. The idea of Chick-fil-A is useful as a shorthand in many discussions and analysis, and, indeed, has specific meaning and importance in the area of law. But let’s not kid ourselves by conjuring up imagines of everyone at Chick-fil-A gathered around a drumstick shaped conference table one Monday afternoon to determine where this year’s donations would be sent. Undoubtedly, a very small group of people somewhere relatively high up, if not at the very top, made the decision about how to distribute these funds.

I say this only because I fear a certain amount of persecution for those individuals unfortunate enough to be on the front lines of the company’s franchises. I know from first hand experience that many of us know relatively little about the companies for which we work. I would not be surprised if the fry guy, or the checkout guy, or the chicken girl knew nothing of these donations before the recent brouhaha. I say this realizing that the company is outwardly religious in its mission statement. But even if employees were aware of the donations perhaps we should still cut them some slack. I doubt they were attracted to low-level positions at Chick-fil-A because of the company’s questionable values. More probably these employees have relatively few options for employment and are doing the best they can to carve out a living. Sometimes people make tough choices when their livelihood is on the line, and I for one am not going to blame them for that. Sure, some employees share the views put forward by the company’s mission statement, but I’m keeping an open mind as to which employees these might be.

On the other hand, it does seem fairly clear that these donations went to organizations that are openly hostile to same-sex marriage. You can view a complete list of Chick-fil-A recipients here. With a little poking around it seems that promoting traditional family structures is one of the core missions of these organizations. And it is troubling that their budgets are now thousands or, in one case, a million dollars richer.

Opponents have reacted just as they should — protesting, sure, but more importantly not purchasing Chick-fil-A food products. People purchase items when the price of the product is less than the expected value (or utility) they receive. But value is not utilitarian in the strict sense. Embedded in value are all kinds of non-traditional forms of utility like aesthetics, the importance of the brand, and the moral principles of the company compared to the those of the purchaser. (That’s why Apple products can garner a premium despite having nearly identical hardware components). So clearly, using this all-encompassing definition, Chick-fil-A products have lost value in light of recent events. Some have pointed out that Chick-fil-A’s values have not changed for years; but, again, what has changed is the information available in the public forum about these values. Behavior, aptly, responds to new information.

Social movements are an underappreciated aspect of capitalism, but just as surely are part of the modern capitalist system. What is unrecognized by most participants in social movements, however, is that these movements can be very good for the corporations at which they take aim. I don’t mean in some vague sense relating to free publicity and so on, I mean in a real economic sense.

Remember that $5 ATM fee Bank of America proposed charging late in 2011? An online petition against the fee was started by Molly Katchpole, a part-time nanny, and quickly gained over 300,000 signatures, causing BofA to cancel the planned increase. This seems like a victory for consumers, and in some sense it is, but it’s also a victory for BofA because they learned something about the elasticity of their ATM services. The term “elasticity” is used by economists to denote the relationship between quantity and price. If the price increases do consumers cut back a lot, a medium amount, or not at all? A high elasticity means consumers cut back a lot when price goes up. I suppose something like chocolate would be a good example because there are so many substitutes for those who have a sweet tooth. A low elasticity implies the opposite. We might think of cancer drugs as falling into this category. You’re likely to make sacrifices in other areas of your life in order to continue purchasing your cancer medication even if the price, say, doubles. In this second case, there really are no substitutes.

Firms want to charge the highest price possible without losing customers — the price that maximizes profit. But figuring out what that prices is isn’t so easy. Sure, you could do focus groups, but nothing beats 300,000 consumers collectively screaming out, “That’s too much!” “No problem,” says the bank, “we won’t charge that much.” The information embedded in these social movements is extremely valuable. Now there’s a bigger question about why a company is raising prices in the first place — maybe they are losing money or have a poor business model more generally — but elasticity information about particular services can help steer structural reforms in the business and guide executives’ decisions about the best overall method to reduce costs.

The same holds true for Chick-fil-A and the information they were able to garner. The company now has all kinds of demographic data by region (based on franchise location) showing customer loyalty and political beliefs, and can adjust local marketing campaigns accordingly if they so choose. The company also now knows roughly what percentage of total product value is due to their corporate values.Turning to the macro scale, Chick-fil-A now knows how consumers at large will respond to future charitable giving.

Overall technological improvements have caused collective action to work more quickly. Now social movements can easily garner support in days and weeks instead of months and year. But increased technology has also sped up the response time of businesses and likewise increased the sophistication with which firms can analyze the inevitable stream of data that occurs when masses of consumers willingly reveal their preferences and elasticities for particular services.

On net it’s unclear whether the companies or consumers benefit. Perhaps the loss in customers more than offsets the value of the information firms collect. Or perhaps the lost revenue from not being able to implement a $5 ATM fee will lead to more devastating cuts in other areas. Because of technology customers were able to come together and quickly bridge the information gap. Within days, millions of BofA customers knew about the proposed fees and had their outrage validated by strangers across the country. On the other hand, perhaps in the absence of a social movement there would have been a steady leakage of BofA customers away from the bank, with a policy reversal coming only after many more customers had left. The quick response from customers allowed BofA to respond equally quickly, perhaps keeping many customers that would have otherwise left.

But even if particular businesses don’t benefit the industry as a whole surely does since, for example, other major banks can us the BofA experiment to infer information about the elasticity of their own ATM services. In the case of Chick-fil-A, consumers gave a signal to businesses throughout America about the consequences of certain types of corporate giving. BofA and Chick-fil-A were “first movers” in their respective business policies. The widespread response of consumers articulated all kinds of important information to firms throughout America. This information may even counteract the reasons behind the social movements in the first place.

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