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Where Supply and Demand Won’t Work
July 2, 2024
How Alexander Hamilton Gave Us Economic Independence
July 4, 2024
In the fast food world, the new number is $5.
It is all about competition.
Fast Food Fights
At Starbucks, $20 will get you four beverages. Meanwhile, with a McDonald’s $5 value meal, you receive either a McDouble Burger or McChicken sandwich. a small fries, 4 chicken nuggets, and a small soft drink:
At the same time, Subway has $3 dippers, Denny’s has $5.99 “all day diner” deals, and Burger King matched McDonald’s. Elsewhere, casual dining chains are trumpeting affordability with unlimited wings and $10.99 burger meals.
The fast food price decline is supposed to contrast with the 21% price increases that consumers had been complaining about. Believable but inaccurate, some said a Big Mac combo cost them $18.
Our Bottom Line: Monopolistic Competition
In monopolistically competitive markets, companies need to tell us why they are special. Yes, McDonald’s wants to differentiate itself from Burger King. But here, as prices went up, the market inflated beyond fast food. Rather than saying they are cheaper than their “brethren,” they are comparing themselves to the rest of the restaurant universe.
In a monopolistically competitive market, it all makes sense.
Monopolistic competition is composed of two halves. The monopoly part indicates the company is producing something unique that you associate solely with it. But the competition half says that lots of others have something that could be identical or very similar. A beauty salon is the perfect example. You can get a haircut at many hundreds of shops. But the one person that does your hair is what makes the place unique.
Fast food competitors know they need a $5 meal to regain their traditional identity. They need it to distiguish themselves from the rest of the restaurant world..
My sources and more: Thanks to WSJ for inspiring today’s post on fast food fights and Yahoo Finance for its graphic image. Then, CNN added more depth with customer complaints.
