Not really about time, a speedy fast food drive-thru is one way that firms compete.
Econlife Blog
Fact Questions:
- Why should we remember Ray Kroc?
- Compare drive-thru times for McDonald’s for 2012, 2018, and 2021.
- How might McDonald reduce drive-thru time by 20 seconds?
- Referring to the tables in the econlife post, compare McDonald’s drive-thru times to three other fast food chains.
- Referring to the tables in the econlife post, compare McDonald’s drive-thru accuracy to three other fast food chains.
- Referring to the tables in the econlife post, what might the number of vehicles in line say about a drive-thru?
The Economic Idea: Competitive Market Structures
When companies compete in different ways, it usually depends on their market structure.
Small companies and farms tend to sell almost identical products like similar potatoes. Those small businesses have little power. Instead, through “perfect competition,” the market sets prices with supply and demand.
Next we have a second model for competition in which businesses are similar but also unique. Called monopolistic competition, this kind of market structure takes us to businesses that include barbershops and supermarkets and fast food restaurants. These three kinds of establishments and others like them sell a similar item. Also though, something differentiates each business from the others. It could be a special person who cuts your hair or the quality of produce in a supermarket. It could be the Big Mac or the Whopper.
After this, we have the very large companies that compete against each other is a market structure called oligopoly. Coke goes against Pepsi and Chevrolet tries to outsell Ford. They compete with product differentiation. To create a difference, Coke tells us that “zero sugar is the best ever” while Ford has new auto models each year.
Then, lastly, we have monopolies. These are the firms that alone control a market. It could be a single water company in a town or a country doctor that is the only source of medical care in the area.
A market structure graphic would take us from left to right across a scale that has countless slots rather than just four. We would place a firm in a certain spot on the scale after considering whether it had many rivals, was big or small, and had a lot or a little pricing power.
A Market Structure Scale:
In a market that has monopolistic competition, McDonald’s tries to compete through faster drive-thru time.
Activity Goal: To see the market in which firms compete
Procedure: A line-up exercise
- In class, everyone should name a business that produces a good or a service. It could be a huge company that employs thousands or a small one in your neighborhood. (Be sure that every person named a different business.)
- Next, using the above competitive market structure diagram, decide where you would place the business that you selected.
- Then, your class should form a line in which the businesses are in the order that they would appear on the competitive market structure scale. Starting with perfect competition, and then monopolistic competition and oligopoly and monopoly, decide where your business belongs on the scale.
- Finally, each person should defend the position that they chose. If you change your mind, then switch with someone. Continue debating who belongs where until you think your class line-up is accurate.
- Optional Conclusion: Discuss how your position in the line-up influences how your company competes.
