Monopolistic competition in the UK shop market

Monopolistic competition in the UK shop market

The UK is among the top ten coffee importers countries around the world, which is ranked the third most favourite non-alcoholic drink in society. A coffee shop is defined as any restaurant that provides a variety of tea, sandwich, cake, coffee and other light meals. The main objectives of this report are to evaluate the impact and the effects of the monopolistic competition in the UK with the introduction of independent coffee shops that are entering the already competitive market and striking the match that is already set up by the monopoly companies. The report will focus on the study of Performance of Starbucks coffee shops in comparison to the cozy coffee shops. The research will focus on establishing the effects of monopolistic competition in the market, products differentiation, the results of advertising, branding, as well as the impact of competitors to the existing market.

The coffee shop industry is evaluated as a monopolistically competitive market, describing a situation where various large companies are competing in the market, with each company enjoying to some extent of the market superiority. And the ability to define their pricing, consequently having irrelevant small market share that is low concentration. Despite the monopolistic market exhibiting the characteristics of perfect competition, it illustrates the aspects of a monopoly also. Where a monopoly is defined as a situation that a single organization commands most of the market on a particular form of product or service, and in most cases inflating the prices of products thus deeming inferior products over other firms. The report evaluates the following characteristic of the monopolistic competition market in assessing what has been the motivator of cozy coffee shops gaining strength in the field that was previously dominated by the Starbucks coffee shops.

• Number and size of firms in the market

The report identifies that cozy coffee shops are gaining superiority in the coffee industry due to the evaluation of the market size and the number of operators in the market structure. The number of customers that are being served by the Starbucks firm is higher than the firm can offer despite the firm offering the best and quality products and services. The advantage of the market structure has been the primary tool that the Cozy have applied in their marketing strategy to ensure that they win various customers since the cake is too large for Starbucks to share on their own, i.e. customers

• Barriers of entry into the market

The market structure is free from entry and exit, thus providing the sellers with the room to make their decisions on when is the best time. And establish the required resources and human resources to ascertain the relevance and win the customers preference and gain reputation despite the stiff competition that is present. Through this aspect of free entry and exit cozy free have gotten the chance to enter the market which is dominated by highly esteemed sellers such as the Starbucks and despite this, they are capable of getting the market attention and making sales.

• Nature of the product

The product and services that are being offered by the Starbucks coffee shops are consumer goods such as coffee. The cozy coffee shop has also embarked on supplying the same products and services what they have focused more on is the improvement of them. Such as improvement of flavours and other incentives.in this way they can win a variety of customers who prefer the upgrades that are made by the competitors of Starbucks, therefore, increasing their reputation in the market structure.

The characteristics discussed above are the ones that make it possible for the cozy coffee shop to enter the market structure which is already established with other sellers and dealers already dominating the market but due to the features that are exhibited by the monopolistic competition market structure the seller can chip into the market and start operating and gaining customers and relevance almost similar to the already existing sellers, i.e. Starbucks coffee shop.it would have been hard for the cozy coffee shop to penetrate the market if the market was exhibiting the characteristics of a monopoly or perfect competition market structures the same features will be present, but with limiting factors that hinder the entry of new firms into the market, therefore, the entry chances of cozy coffee shops into such exchange will be limited since the market structure will impose some restrictions in which will make it hard for cozy coffee shops to operate such as hiking of prices.

Monopolistic competition describes a form of imperfect competition with many producers selling products that are differentiated from each other through branding or quality; therefore, they are not perfect substitutes. This is significant for the cozy coffee shop that they have to ignore the pricing of their competitors Starbucks and concentrate on the improvement of the branding embarking on an advertisement which is seen as a way of creating awareness to the consumers on their products and services. Thus increasing the customer volumes who were expecting something different from what they have previously been consuming this boosting their reputation and loyalty among the consumers of their products.

To deeply converge the operations within a coffee shop market structure as well as the behaviours of the customers, the report gathered primary data through the observations of the two case study firms and conduction of interviews to the users of coffee from the different firms. The observation research inclusive of systematic recording of observations, description, interpretation and analysis of the customers’ behaviour. Within the semi-structured interview, the researcher is expected to develop a questionnaire and select an interviewee who has the concrete and the expected data of the report, such as the pricing quality and service delivery.

Product differentiation

Firms in the monopolistic competition (Starbucks and cozy coffee shops) do sell products and services having real and perceived non-price differences; therefore, the differences are minimal for the elimination of other products as substitutes. The cross-price elasticity of demand for products between Starbucks and cozy coffee shops market is positive. Products in monopolistic competition are well known as close but imperfect substitutes. The goods have the same essential functions and Performance but what differentiates them is the aspect of quality like the type, quality, style their appearance and location or their location, which distinguishes them from each other. For instance, the essential function of coffee drink is to relieve mental or physical fatigue and to increase the mental alertness, yet they are many types and forms in which the coffee is prepared and served.

Short-run equilibrium of the firms (Starbucks and cozy coffee shops) under monopolistic competition. The firms do maximize profits by producing an amount where its marginal revenue is equal to the marginal cost. Where the firms can collect their prices based on the average revenue curve .to evaluate the total profit accrued by the firms you calculate the difference between the firms’ average curve and the average cost then multiply the results by the quantity sold.

In the long-run equilibrium of the firms (Starbucks and cozy coffee shops) under monopolistic competition. The firms are still producing where the marginal revenue and the marginal cost are equal. Besides the demand curve is seen to shift when other firms’ for instance, cozy coffee shops entry into the market has fostered competition. The firms will therefore not make sales of its goods at a price that is above the average cost and can no longer claim the economic profit. This is influenced by the command the firm has on the market in terms of branding and measures it is embracing to raise its prices without the loss of customers.

The study was able to realize that the coffee shop market is developing and expected to continue growing, with customers buying trends also affecting the market through the branding available and the quality presented. Therefore the firms are expected to evaluate the needs and preferences of the customers in ensuring that they meet the demands of the customers to avoid the benefits being enjoyed by joining firms. Which are entering the market structure freely and taking advantage of such gaps and winning the customers more and creating a reputation in short time preference.