Fast Food Market in Canada Economics

6442 Words Mar 16th, 2011 26 Pages
The Fast Food Market In Canada | | 10/13/2010Table of Contents The Market for Fast Food in Canada 3 Is the Demand for Fast Food Elastic or Inelastic? 5 Influences on Price Elasticity of Demand 7 The Relationship between Price Cuts and Total Revenue 9 Understanding Fast Food Price Cuts 12 Works Cited 15



The Market for Fast Food in Canada
When examining market structure, one must look at several factors including the quantity of firms, type of products offered, barriers to entry, pricing power and non-price competition. In order to define the fast food market, all of these factors must be considered. Due to competition, price wars, and barriers to entry in the fast food market, market structure becomes slightly muddled and
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A third factor that actually classifies the structure of the fast food market as monopolistic competition and not oligopolistic is the fact that though the fast food industry implements non-price competition through coupons, promotions and advertisements, the industry also experiences price wars. There is no tendency to keep prices fixed within the fast food industry. Oppositely, there are constant price wars between fast food competitors (AmosWEB). In 2008, Taco Bell began offering products at prices ranging between $0.79-0.99 in order to undercut the dollar menus at McDonald’s and Burger King. Wendy’s has taken on a similar strategy, offering a double hamburger for one dollar. Many companies are following this trend in congruence with their competitors and this is creating a possibly detrimental price war (Motley Fool). These price wars have led to losses for many fast food companies trying to keep up with their leading competitors’ dangerously low pricing. The giants of the industry can afford to set their prices extremely low; however, companies such as CKE Restaurants Inc. are experiencing large losses in 2010 due to their inability to price as low as front-runners, including McDonald’s and Burger King. Due to the damaging price wars, “CKE Restaurants Inc. (CKR) recently reported a loss of 6 cents per share for the first quarter of fiscal 2011” (Seeking Alpha). Prices remain fairly rigid within an oligopolistic

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