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Kenan Institute 2024 Grand Challenge: Business Resilience
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Market-Based Solutions to Vital Economic Issues
Research
Jun 25, 2024

Pandemic Intensity, Market Structure, and Firm Closures: A Study of the Texas Restaurant Industry

Abstract

The disproportionate emphasis on firm closures during crises, such as the recent pandemic, may overlook potential variations in firm exit rates across markets. Ignoring that variation likely hinders accurate insights though, as are required by both practitioners and policy makers. To investigate variable firm closure rates across markets, this study proposes a firm closure model that integrates the unique roles of the market structure (number of firms and firm type), firm responsiveness, pandemic intensity, and their interactions. Results from multisource data pertaining to the restaurant industry in Texas, before and during the COVID-19 pandemic, provide useful managerial insights. In detail, restaurants’ propensity to exit is linked to the number of restaurants in a market, and it also increases with greater pandemic intensity. Chain restaurants are less likely to close, compared with nonchain restaurants, but the gap in these closure propensities decreases with increased pandemic intensity. Responsive restaurants that implemented stricter safety measures and services are less likely to exit, with greater benefits for nonchain compared with chain restaurants.

Note: Research papers posted on SSRN, including any findings, may differ from the final version chosen for publication in academic journals.  


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