Market in Coffee Bar

Econ 202


According to earning 22.4% market and growing fast in the next 3 years, Starbucks has become the biggest coffeehouse chain in the U.S. however, its hostile, the independent coffeehouse are not bankrupt but get more sales for locate near by it.

Even if Starbucks achieves such meteoric growth, however it will never have great market power. There are so many coffeee bars in the United States,with so many other close substitutes, the best Starbucks can hope for is a little brand loyalty. If enough consumers think of S whne they get caffeine urge, Swill at least be able to charge more for coffee than a perfectly competitive. It won’t enjoy monopoly profits, or even share the kind of monopoly profitd, oligopolies sometime achieve, it may however ,be able too maintain an economic profit for many years. Market structure: monopolistic competition.modest changes in the output or price of any single firm will have no perceptible influence on the sales of any other firm(indepent prodution decisions).low barriers tho entry. Itspush econmic profits toward zero.

There are many firms in the coffee bar market; Starbucks is the only big chain and the second one is more less than it. so the concentration ratio of largest 4 firms should be less than is a low concentration ratio. Starbucks has some control over the price of its output, each producer in monopolistic is large enough to have some market power.monopolistically competitive firm confront a downward-sloping demand curve for its output.features that make one product appear different from competing products in the same market.(product differentiation) each firm has a distinct identity, a brandimage.its oyutput is perceived by consumers as being somewhat different from the output of all other firms in the industry.each firm has a monopoly only on its brand image; it still competes withother firm offering close substitutes.this implies that the extent of power a monopolistically competitive firm hs depends on how successfully it can differentiate its product from that of other differentiating their products,monopolistic competitors establish brand loyalty. It gives producers greater control over the price of theire implies that consumers shun substitiute goods even when they are cheaper. This renders the demande curve less price-elastic.

Maximize profits MC=MR,qa. Qa touch the D cruve=Pa.

When new firms enter, supply shift right, D shift left. As more and more firms come in Dcurve shift left,at the end ,no economic long run,no economic profits for the Dcruve is tangent to the ATCcurve.produce at the lowest point of ATC in is the maximizesefficiency.the M C.isn’t producing at minimum average cost. M.C.tends to be less efficient in the long run than a perfectly competitive industry. One symptom of the inefficiencies associated with monopolistic competition is industrywide excess capacityprice always exceeds the opportunity cost.consumers respond to these flawed signals by demanding fewer goods from monopolistically competitive industries than they would otherwise..M.C. results in both production inefficiency(above minimum average cost) and allocative inefficiency(wrong mix of output) the price reductions aren’t a very effective way to increase sales or market share in monopolistic competition.imperfectly competitive firms engage in nonprice competition.

Each MC firm enjoys some brand loyalty. This one , together with its relatively small market share, gives each firm a high degree of independence in price and output decisions.the amount of market share and power a monopolistically comprtitive firm possesses depends on how successfully it differentiates its product from similar products.its nonprice competition .the resources used in nonprice comoetition(advertising ,packaging, service,ect)may have more desirable uses, these industry structures lead to resource misallocation.