Economics Essay Example | Topics and Well Written Essays - 750 words - 10

Economics - Essay Example For this giant, coffee is not the main product but only a component of it. Starbucks is not just all about coffee but being able to relax and socialize at its warm and comfy ambiance. However as the article emphasizes, the performance of the specialty coffee shop in the market is adversely affected by the economic slowdown in the United States. As consumers try to squeeze their disposable income to cover all their expenditures, they also turn to industry players which offer coffee for a fraction of a cost of what Starbucks charge. Thus, McDonalds and Dunkin Donuts are eating up into the company’s shares with their cheaper alternatives. In response to this, Starbucks is test marketing $1 bottomless coffee in order to curb competition. Analysts have commented that Starbucks will lose big time with this strategy because it lowers revenue. Yet this paper argue that economically speaking, this new strategy will not erode profitability in consideration of the company’s market . The specialty coffee sector can be referred to as a monopolistic competitive market. This type of competitive environment is a middle ground between two maxims namely perfect competition and monopoly and shares characteristics of both. In monopolistic competition, the market has many buyers and sellers just like in a perfectly competitive one (Samuelson & Nordhaus 116). In the specialty coffee sector, buyers are diverse ranging from ordinary students to corporate executives while sellers like Starbucks and Gloria Jeans compete for market share. As opposed to monopolistic and perfectly competitive markets, sellers differentiate their products to appeal to customers. As discussed above, Starbucks use marketing techniques like advertising and brand name in order to set itself apart from other competitors like McDonalds and Dunkin Donuts. This is very important to all companies wanting to