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Competing as Starbucks

There are some main reasons to consider very famous Starbucks Corporation coffee stores  as a perfect competition market participant. It is one of the numerous number of sellers of the same identical product, with easy entry to the market and no control over price of the product it sells.

In the conditions of perfect competition market nor producer or consumer can affect the price. So it is very difficult to compete in such market, and now Starbucks faced to a decision to close numerous stores in order to survive and improve its position. The closure of the stores is not just the only step, it will also affect other sides of production: the necessity to improve the design of the stores, to change technology to more efficient and more productive, to cut number of sales associates.

Those all factors let us conclude that demand for this exact product is too big for the market. As a result of the increase in the demand , both the price and the industry output increase, but in the long run market supply increases, as a lot of new firms enter. Result is that the market price drops, and this  becomes a new equilibrium point. As we consider Starbucks the average company in the market, it should reduce its output back to previous equilibrium.

In the long-run the position of Starbucks could return to it’s previous state.

The decrease of demand could be shown on following graph:graph sd

Although the price of coffee in Starbucks could be considered as more expensive, this is understandable due to it’s very famous and prestigious brand. Everyone knows that quality there is very good  too, that we can really trust the service and the product.

 

Source for this post:

  • Starbucks Gossip
    (http://starbucksgossip.typepad.com/_/2007/02/starbucks_chair_2.html)
  • CBC News
    (http://www.cbc.ca/money/story/2008/07/01/starbucks-closures.html)
  • The Seattle Times
    (http://seattletimes.nwsource.com/html/businesstechnology/2008028854_starbucks02.html)

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