Monopolistic Market Competition Of The Coffee Shop Industry Essay

There are different types of competition in the market for coffee. There are usually a multitude of coffee shops of different types and ownerships to supply for the highly concentrated demand. The most

Topic: An examination into the rise and fall of Starbucks Coffee Company and its relationship to certain microeconomic principles.

Nowadays people tend to follow the trend from the western culture. Compare to tea, coffee is more famous among the Malaysian. According to the reader’s poll conducted by I.M. Magazine in year 2012, they found out that 81.2% of Malaysians consider themselves as a coffee person. Almost 44% of them guzzle 2 to 3 cups per day, 25% drink 1 cup per day and 19% consume less than 1 cup per day but more than 1 cup per week.6.3%will sip less than 1 cup per week. When the surveyor are ask if they could survive without coffee for a week, 43.8% of Malaysians said no, 37.5% said yes and 18.8% were unsure about the answer.

* Establish a positive image with the local university to create additional long term clientele.

equilibrium. The new company is now run as a monopoly, and this paper shall explain

In economics, a monopoly is a single seller. In law, a monopoly is a business entity that has significant market power, that is, the power to charge high prices.[4] Although monopolies may be big businesses, size is not a characteristic of a monopoly. A small business may still have the power to raise prices in a small industry (or market).[5]

Markets differ in a variety of ways including the degree of concentration and competitiveness, a fact which is reflected in the concept of ‘market structure’. Economists’ models link the structural characteristics of a market to the behaviour of firms in that market and subsequently to their performance. A key question therefore is how far a firm’s strategic decisions are shaped by the structure of the market in which it operates.

The industry’s saturation is moderately high with a monopolistic competition structure. For new entrants, the initial investment is not significant as they can lease stores, equipment etc. at a moderate level of investment. At a localized level, small coffee shops can compete with the likes of Starbucks and Dunkin Brands because there are no switching costs for the consumers. Even though it’s a competitive industry, the possibility of new entrants to be successful in the industry is moderate. But this relatively easy entry into the market is usually countered by large incumbent brands identities like Starbucks who have achieved economies of scale by lowering cost, improved efficiency with a huge market share. There is a moderately high barrier for the new entrants as they differentiate themselves from Starbuck’s product quality, its prime real estate locations, and its store ecosystem ‘experience’. The incumbent firms like Starbucks have a larger scale and scope, yielding them a learning curve advantage and favourable access to raw material with the relationship they build with their suppliers. The expected retaliation from well-established companies for brand equity, resources, prime real estate locations and price competition are moderately high, which creates a moderate barrier to

In the food or restaurant industry there are many players within each marketplace. When an individual entity does not have full control over the market, related to price or market share, it is described as a monopolistic perfect competition market. Essentially, that is the type of market that Starbucks finds it in. The basic feature of the food and restaurant market is the large number of players in the market produces similar products but not identical products. In other words, there is a bit of differentiation among the products. It is an open market which allows for freedom of both entry and exit. Competition within the industry is very competitive with a limited amount of market control.

Market speculation would also drive the price of coffee up or down. For instance a study issued by the Harvard medical school in August 2004 states that “coffee consumed in moderation is safe and offers health benefits such as lowering the risk of gallstones and type two diabetes, and reduced cancer risk for women.” This speculation because of the health benefits publish may drive the market price of coffee.

Starbucks faces competition from variety of small-scale specialty coffee chains, such as Caribou Coffee, Peet’s Coffee and Tea, Dunkin Donuts, and thousands of independent specialty coffee shops. Each of them applies different strategies to differentiate itself from Starbucks; some of them deliver highly personalized service.

Sitting, sipping, spending; these are all things one can do in a coffee shop. Coffee shops are in nearly every town in the US. This market has become separate from the rest of the dining industry by specializing in a variety of coffee and coffee drinks. Coffee shops have started to bring new tastes and options for consumers. Coffee shops are a luxury that are beginning to seem stable and perhaps permanent part of the economy, they meet a demand for out of home coffee and meeting spaces.

Starbucks is undoubtedly dominating the coffee industry, however that does not exclude the entry of new rivals. For example, McDonald’s, Burger

Nothing like the fresh scent of brewed coffee in the morning – “Starbucks” a well-known coffee house that is still growing and expanding their operations today is considered the number one specialty coffee retailer around the world and abroad. Therefore, the supply and demand for coffee is on the incline and is regarded as one of the most rapid growing organizations in the world. According to the National Coffee Association, adults between the ages of 18 and 39 are more likely to purchase coffee out-of-home, then older consumers (2016). Even coffee statistics conducted in 2016 indicates “50% of the population, equivalent to 150 million Americans, drink espresso, cappuccino, latte, iced/cold coffee” (E-Imports, 2016). Other statistics numbers show that an estimated of total Americans consuming coffee would be up by 1.5% and specialty coffee up from 20% in this year alone. Even the global consumption will increase by 12% over the next years. Therefore, a key question is how will the “law of demand” predict how the consumers will behave (Lorenzetti, 2016)? Namely, will the higher demand for coffee beans impact what the consumer at Starbucks will pay for a cup of coffee? Therefore, companies such as Starbucks should analyze and understand the microeconomic model to get a clear picture of the price elasticity, cost to produce, and the overall market to make the most effective business decisions and recommendations that will have an

Many coffee companies are currently in the market, making competition fierce. Although Starbucks has a strong reputation in North America, direct and indirect competitors still pose a threat. To establish market niche, competitors use location,