The loss of sales would force fast-food establishments to raise prices even more to cover fixed costs like rent, insurance, and marketing. These price increases would, in turn, further reduce sales, necessitating further price increases.
Many economists analyzing the fast-food industry overlook this dynamic.[9] They assume that fast-food restaurants would only have to raise prices enough to cover the cost of wage increases—ignoring the sales and revenue that fast-food restaurants lose because of these price increases. Consumers’ price sensitivity means that fast-food prices must rise by more than the initial increase in labor costs.