According to Hirschey (500), monopolistic competition is a form of imperfect competition that includes many producers selling commodities that are differentiated from one another. The differentiation of the products may be through the quality of the products or distinctive branding such that the products do not form perfect substitutes. Turvan (268), describe monopolistic competition in terms of the market structure. According to Turvan (268), monopolistic competition has a market structure which has three distinctive characteristics.
The first characteristic of a monopolistic market structure is the many sellers. According Turvan (268), the characteristic of the many sellers is fulfilled when the size of the firms are very small compared to the market size. In such a situation, the pricing decision of the firm has a negligible effect on the market price. The second characteristic in the monopolistic market structure is the differentiated product where a product has close but imperfect substitutes. When products are differentiated, the buyers are indifferent on their choice of products. Finally, a monopolistic market structure exhibits a free and easy entry and exit from the market (Turvan 269). This papers assess why Starbucks market structure is considered a monopolistic market structure.
Starbuck Market Structure
Starbucks Corporation, an American coffeehouse chain and company, has established a monopolistic competition as the base of their market structure. The monopolistic market structure is aided by the differenciation of their products, price control and numerous producers.
Differentiation of Starbucks Products
A customer buying in a monopolistic competition market has a choice getting similar products of a from shops at close ranges. Product differentiation is achieved mainly through support services, perceived differences and physical differences. Starbuck differentiates its products from the competing products through the use of different coffee beans. Starbucks coffee beans are sourced from exotic coffee producers such as Antigua, Ethiopia and Brazil. With such exotic sourced beans, Starbucks is able to offer a range of choice of beverages, unique to other producers. The store design and barista training also contributes to Starbucks Products differentiation. One of the synonymous Starbucks products include Starbucks Frappucino, a type of blended coffee. According to Starbucks, the Starbucks Frappucino employs a unique and secret menu and served with multiple flavors compared to McCafe coffee, Coolatta caramel coffee and Baskin-Robbins. Such differentiation promotes Starbucks Coffee as superior compared to the rivals.
In the coffee industries, there are many coffee shops which sells the same commodity – coffee. For instance, among the sellers in the coffee shops market globally include Starbucks, Costa, Caffe Nero. Taylor St baristas, curators coffee studio, and independents. In such an environment, the pricing decision of Starbucks have negligible effect to the market price. Therefore, Starbucks can adjust prices upwards independently without the fear that the other coffee producers might react by either improving their services or adjusting their prices down wards.
Easy Entry and Exit from the Coffee Market
The entry to the coffee market has very few barriers. In order to start a coffee shop, only an espresso maker and beans are required. However, such small shops do not last for long since the major chains, such as Starbucks takes over most customer due to their unique product. The established reputation of Starbuck in the coffee market will discourage the new entrants from becoming established. Small coffee shops across the country such as Bridgeport coffeehouse in Chicago or Makers & Finders Coffeehouse in Las Vegas are unable to compete with the global establishment of Starbucks.
Since Starbucks Corporation meets the three requirements of a monopolistic market, then it can be said to be employing the monopolistic market structure. Having been established for a long time, Starbucks has developed unique ways to differentiate its products, store design and barista training that ensures loyal customers.
- Hirschey, Mark. Fundamentals Of Managerial Economics. 9th ed., Mason, OH, South-Western/Cengage Learning, 2009.
- Tucker, Irvin B. Microeconomics For Today. 9th ed., Australia, Cengage Learning, 2017.
- Starbucks. “The Best Coffee From Starbucks Coffee”. Starbucks Coffee Company, 2017, https://www.starbucks.com/coffee.