Starbucks Market Structure, Essay Example

A significant proportion of Americans start each day with a cup of coffee and I also belong to this group. In fact, one of the companies I regularly do business with on almost a daily basis is Starbucks. Starbucks has helped popularize coffee in America in arguably the same manner McDonald’s helped build a culture of hamburger in America. After carefully reflecting upon the market in which Starbucks operate, I have reached the conclusion that it is more an oligopoly market structure than one of the other three which are perfect competition, monopoly, and monopolistic competition.

First of all, oligopoly market structure is characterized by few firms holding the majority share of the market and in this case, Starbucks and Dunkin’ Donuts alone control more than 60 percent of the market share (Bixler, 2014). Oligopoly market structure is also characterized by market players watching each other’s actions. This is also apparent in the coffee market as Starbucks has taken steps to reduce prices of some products(Forbes, 2014)even though its products are usually priced at premium rates.This is likely a response to competitors like McDonald’s which compete on low prices. Oligopoly market structure is also characterized by barriers to entry and indeed there are barriers to entry in the market Starbucks operate. First of all, brand name serves as a barrier to entry because existing dominant players have wide brand recognition and loyal client base. Another barrier to entry is capital because a significant investment in supply chain network and retail outlets is needed. Oligopoly firms may also attempt to achieve differentiation through advertising and market players like Starbucks do engage in aggressive marketing to seek differentiation.

Works Cited

Bixler, B. (2014, February 11). Starbucks Franchise Plan Rolls Out in Europe While U.S. Market Braces for Growing Competition Among Coffee Franchises. Retrieved September 15, 2014. Web.

Forbes. (2014, January 30). Starbucks’ Profits Surge Despite Sales Slowing Down. Retrieved September 15, 2014. Web.