Sometimes competition can determine how a fast food firm like Subway behaves.
- In one sentence, referring to specific points on the econlife revenue graph, describe the financial history of the footlong.
- Between 2008 and 2017, by how much how did the cost of making a turkey footlong change?
- Between 2008 and 2017, by how much how did the cost of making a roast beef footlong change?
- Explain why franchisees had begun to complain about selling the footlong.
- Why did Subway need the footlong to compete successfully against other fast food restaurants?
The Economic Idea: Competitive Market Structures
The behavior of a firm can depend on its competition. And, the competition can depend on the market.
Let’s start with a potato. In supermarkets, potatoes can be sold in a bucket or a bin where many are combined. We don’t know the name of the farmer who grew each potato. It might have been many. It could have been just one. We don’t know because the products are almost identical.
Next, we have a local barbershop or beauty salon. There could be several in every town. But we know there is a difference. They get our business by distinguishing themselves from other shops. Yes, their prices and products are similar. So we choose one based on some other criteria that makes that business unique, like the skill of an employee or the food that they offer.
Then, we can move to much larger businesses. We have the companies, for example, that make our cereal, our soda, our sneakers, and our cars. Each one is large, it mass produces, and it has a nationwide identity.
And finally, very different from the others, we can have a firm or a person, like the single source of water or the only doctor in a town that alone sells something.
From the potato farmer, to the barbershop owner, to the cereal maker, to the single water provider in a town, each wants us to buy what they produce. Each, like Subway, has to figure out how to compete.
Activity Goal: To become more familiar with how different kinds of firms compete.
- Each individual should create four small strips of paper.
- On each piece of paper, note the name of a good or a service. Two should be for larger businesses and two for smaller firms.
- In a bag, combine all of the strips of paper that name the goods and services.
- Next, everyone should draw one strip of paper from the bag.
- For the good or service that you wound up with, state what could make you buy it. In other words, tell how the producer competes.
- Create a class list of competitive strategies.
- Indicate whether the competitive strategy is used by a small or a large company.
- Decide how your examples demonstrate that large and small firms compete differently.