Competitive Market In Starbucks

The main concepts involved in the topic are the “monopolistic competitive market”, “ third degree price discrimination” and “price elasticity of demand”. There will be some explanations and the following procedure about connecting general concept to the Starbucks case. Monopolistic competitive market Monopolistic competitive market refers to a market organization form which is between the perfect competitive market and the monopolistic market. In this form of markets, the monopoly and competition are compossible. The competitive elements are shown because the market consists of large amount of consumers and manufacturers. Manufactures produce the semblable products, but the diversities are also existed. It also caused

Price discrimination is a practice of charging different prices to different consumers under the circumstances of keeping the same cost of production. The manufacturers always set the high price in one particular region to gain excess profit because they have the certain ability to monopolize or control consumers’ demand. However, for those markets which have lower demand, manufactures will set a relatively low price to encourage the consumption. Starbucks charges the relatively higher price in Shanghai than in New York and Mumbai to pursue the higher profit. The high price elasticity of demand of Starbucks ' coffee in Shanghai can be one factor and Starbucks also maintain the high price through taking action to influence consumers’ sensitiveness for high prices.

Price elasticity of demand It is effective to use PED to measure consumers’ responsiveness of the quantity of goods demanded to the change in prices. There is the formula to calculate the PED:

When one good is inelastic, which means the responsiveness of the quantity demanded doesn’t change a lot despite the price increases, the PED will less than 1. Instead, if the PED is more than one, the good is

The supply and demand relationship are bidirectional that there will always be people willing to buy higher price products. The low PED in Shanghai highly correlates to the market targeting. The target of Starbucks in Shanghai is not the common people, but the young people in the new era. Most of them are the white-collar workers in Shanghai and like to pursue the petit bourgeoisie sentiments. These groups is developed swiftly along with Starbucks’ development. In one aspect, they need coffee to keep the greatest efficiency in the office. Additionally, the high clustering of young people in Starbucks can construct the atmosphere of the superior. As time passes, young people would rely on Starbucks and enjoyed their modern