Coronavirus economics: the impact of shutting down meatpacking plants

ABSTRACT

Motivated by the observed beef and livestock market impacts of coronavirus-caused meatpacking plant shutdowns, this paper constructs a theoretical model to study the effects of closures among downstream producers on both consumers and upstream producers. It analyzes the pre-shock long-run equilibrium, the effects of firm shutdowns among the downstream producers, the effects of government subsidies, and the new long-run equilibrium if the underlying cause for firm shutdowns persists.

KEYWORDS:

• Coronavirus
• business shutdown
• competitive equilibrium
• subsidy
• social optimality

JEL CLASSIFICATION:

• D41
• L10
• L50

Disclosure statement

No potential conflict of interest was reported by the authors.

Correction Statement

This article has been republished with minor changes. These changes do not impact the academic content of the article.

Notes

¹ We model an upstream market that determines the price ranchers receive for their cattle, and a downstream market that determines the price retailers – grocers – pay for beef. We leave unmodeled any markup retailers add to arrive at the final price to the ultimate consumers.

² However, free entry in imperfectly competitive markets may lead to socially inefficient allocations. See Guesnerie and Hart (1985), Mankiw and Whinston (1986), Ohkawa et al. (2005), and Liu and Wang (2013).