Please Read The Article On PriceIntelligently

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Please read the article: 1) What is a purely competitive market? 2) Why type of market would Starbucks belong to? 3) Why do you think Starbucks increased its prices by 1%, and do you believe that this action is risky, or a safe bet? First, Answer this discussion as 250 words. Second, And choose two of classmates’ discussion to respond as 100 words each

Paper For Above instruction

The concept of a purely competitive market involves a market structure where numerous sellers offer identical products, and individual firms are considered “price takers” because they lack the power to influence market prices. Instead, they accept prevailing market prices determined by supply and demand. These firms can freely enter or exit the market without significant barriers, and their revenue is directly proportional to the market price multiplied by quantity sold. This market type is characterized by transparency and ease of entry, ensuring that no single firm can dominate pricing decisions.

Starbucks does not fit neatly into a purely competitive market, as it possesses unique branding, higher quality standards, and a loyal customer base that somewhat insulates it from perfect competition's strict definitions. Instead, Starbucks belongs to an oligopolistic or monopolistic competition market structure. In this environment, several large coffee providers, including Dunkin’ Donuts, Peet’s Coffee, and local coffee shops, compete for consumers, and Starbucks differentiates itself through branding, store ambiance, and product variety. Although competition is fierce, Starbucks maintains some degree of pricing power due to brand loyalty and perceived product quality, which allows it to charge prices slightly above competitors without losing significant market share.

Starbucks increased its prices by approximately 1% primarily to offset rising operational costs and sustain profitability in a competitive market. Small price adjustments like this are strategic, aiming to maximize profit margins without alienating customers. Given Starbucks’ loyal customer base and the perceived inelastic demand for its products—meaning customers would continue purchasing despite minor price increases—this move is arguably a safe bet. Such incremental rises are less likely to trigger significant customer backlash or switch to competitors, especially when consumers associate Starbucks with premium quality and convenience. Thus, this price increase aligns with a strategic approach to maintaining profitability while managing customer perceptions and demand elasticity.

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