A perfect competition market is defined as a market where the producer and the consumer have no control over the price of the product is bought and sold for. Starbucks is considered a part of the perfect competition market because the price has been determined by the demand of the collective Starbucks customers – because of the popularity of the brand, prices have increased and are being charged at all Starbucks locations. The individual location and customer have no input on what that price is.
Some main reasons for Starbucks to realign their business practices are is that because they have been so interested in growth and improving efficiency, they have lost some of the characteristics that made them stand out in the first place. By introducing new technologies into their stores, they have increased their productivity and efficiency, but they lost some of the character of grinding the beans, and making their drinks theatrically for the customers, some of the things that made them stand out in the first place. This could be the same reason to close a number of stores. To focus on providing the best possible service to the customers that helped them build into the empire they are to begin with. (Retrieved from http://starbucksgossip.typepad.com/_/2007/02/starbucks_chair_2.html September 1, 2012).
Costs and profits have made a big impact on these decisions. The stores that Starbucks are talking about closing are all stores that are not turning a profit and aren’t expected to. Some short-run costs involved with shutting some stores down would be the takedown of materials at the store levels, and the marketing costs of issuing statements regarding the closures and trying to promote Starbucks brand in the midst of negative media regarding closing stores and being responsible for lost jobs. Some long-run costs would be the payout of severance costs and long-term lease obligations that are ended early.
I think that Starbucks coffee is too expensive, but it doesn’t stop me from buying their products. However, for me, Starbucks is a treat – it’s not something that I could legitimize buying every day because then the cost adds up and I look at the opportunity cost of things that I could be spending that money on instead. They are able to charge the prices that they do because they sell a quality product that their customers want, and their customers are paying these prices every day for their products. Because the demand exists for the product, and the price is not impacting that demand, they can continue to charge it. If they lowered their prices, I think that demand would increase because more people could afford their product, or at least could afford to buy it more often. I know for myself, I would visit Starbucks more often if they were cheaper. If there was a increase in demand, Starbucks would have to increase their supply to meet that demand. The graph below shows an increase in demand and supply.
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