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Monopolistic Competition Of Restaurants In Pingshan Street Community

For my expanded essay I thought we would investigate your competition one of the restaurants in Pingshang Road Community; thus my research question is "How do the restaurants in Pingshan Highway Community contend with one another?" As my further investigate, I hypothesize a certain amount of cartel among the list of restaurants may help them to compete better with others? "Also, attempting to evaluate what factors could have an effect on the consumers to make their optimum choice (non-price competition).

The evaluation of the market environment shows that the six restaurants in Pingshan Highway Community compete with one another in a monopolistic competition situation. Through further exploration comparing the purchase price list of homogenous dishes within similar flavor restaurants, I reached the conclusion that the conditions of collusion weren't being proven to be present. To begin with, Ju Xing Yuan and Golden Palace are more costly than others; because it has achieved brand devotion and consumers have already taken the higher price for an improved service into consideration. Secondly, Shiweitian Junk food charges lower prices than others; due to its Economies of Range and having the ability to provide better facilities and various Chinese food to the consumers.

They thought we would contend not only with, but also non-price competition, for example, by offering better facilities and service.

Reasonable prices

Relatively good facilities and services

Successful differentiation of products

Brand loyalty

Location (convenience)

Introduction

Research question:

The type of the Pingshan Road Community restaurants competition market.

Tianjin Experimental High School is one of the top five distinguished institution recognized by Tianjin municipal federal which fostered a huge selection of excellent students in past decades. In order to satisfy the higher taste dependence on massive levels of students, significantly restaurants were opened to attract young fashion teens to become the main consumers. During the first two years of my supplementary school, I had fashioned my lunch at college with my friends. The canteen provided us about 14 sorts of yummy food and commodious space that you can enjoy a meal comfortably. Suddenly from 9th quality, the amount of junior students increases dramatically and the dishes that canteen provided became progressively worse. As a result, I began to have meal like many others outside of institution. Within the Pingshan Road community (Appendix 1. 1), some restaurants dedicated in a single area's dishes, for case, the restaurant of Xinjiang and the Lanzhou noodles. Several restaurants provide traditional Chinese language dishes like the college canteen. By enrolling in IB Economics course and studying of market structures, I developed an extreme interest to work through how restaurants compete with each other.

Why I decided this topic

There can be an old declaring "food is the paramount requirement of the individuals" in China. Subsequently, the restaurants position quo around my college area became extremely interesting for me. Also, my colossal eagerness led me to research the behavior of restaurants in Pingshan Street Community and the non-price competition.

Market Profile

Tianjin Experimental SENIOR HIGH SCHOOL (TEHS) is the place where I have already been studying IB programs for nearly 6 years. It really is locate on the Pingshang Road Community at the centre of Hexi District. Among the top five key high colleges, TEHS has been famous for its variety campus and impressive international education. Since the pay out of the new campus on Pingshang Road, numerous amounts of individuals came and opened their restaurants to be able to catch the attention of students and local people. However, the usage level of students is far less than adults thus they are simply liable to stay in the tidy canteen of university. As the result, many eateries exited the marketplace in the first years. Corresponding to my research, there are 6 small-size restaurants are writing the market with university canteen now. In fact, there are usually more than 6 restaurants in the Pingshang Street Community. However, as the previous research shown, the esteemed caf and restaurant like UBC espresso (from Taiwan) and Sichuan Hotpot are significantly above the usage level of students. Because of this, I find the top six restaurants where can both satisfied the necessity of students in support of take five to seven minutes walking distance from the institution.

The restaurants around Tianjin experimental senior high school (TEHS):

Xinjiang restaurant

Lanzhou Noodles

Ju Xing Yuan (s)

Golden palace (s)

Food is God (Shiweitian Fast Food)

Yummy

The circulation of restaurants

Relevant Definitions

I will present the four market structures and their basic assumptions now.

Monopoly

Monopoly market model is one with theoretical extremely pricing power.

The assumptions of monopoly market:

Single Retailer: There is merely one seller offering the market.

Market power: A monopoly organization will have a great deal of power in the market which is able to set up the prices as they want (price setter).

Very high Barriers to Entrance: You will discover three major types of obstacles to entry; technological, legal and deliberate.

Technological Superiority: Businesses attempting to type in the market could suffer from technical obstacles first, where in fact the monopoly company enjoy reducing marginal costs within the period of market demand, for case unique techniques and producing methods.

No Alternative Goods: A monopoly markets a best for which there are no close substitutes. Control of Natural Resources: A prime way to obtain monopoly vitality is the usage of a certain resources. It is advisable to the creation of your final good.

The demand curve of monopoly

Oligopoly

The decisions of one firm impact, and are inspired by the decisions of other firms. Proper planning by oligopolists always involves considering the likely reactions of the other market participants. This triggers oligopolistic marketplaces and companies to be at the best risk for collusion.

An oligopoly has some key defining characteristics, particularly that the market is dominated with a few large companies (usually four or five) manipulate a major share of the marketplace (over 40% of the market. Moreover, potential access standard is rather high (an integral difference to the monopolistic competition)

Ability to create price: Oligopolies are price setters alternatively than price takers

Entry and Leave: Obstacles to access are high. The most important obstacles are economies of size, patents and gain access to intricate technology.

Number of organizations: There can be a small number of firms in the market, but only a few of them dominate the marketplace. There are so few businesses that the activities of one organization can affect other companies.

Product differentiation: Product may be standardized, material, or differentiated.

Perfect Knowledge: Oligopolies have perfect understanding of their own cost and demand functions but their inter-firm information may be incomplete

Perfect competition

Perfect competition explains the perfect being a market where there is many small organizations, all producing homogeneous goods.

The assumption of pure competition:

There huge amount of companies in the market

The companies have similar goods

There are no barriers to entry or exit the market

They are price takers.

all retailers and buyers have perfect knowledge of the market conditions

each firm is a short run earnings maximiser: firms operate under the profitmax condition of preparing output at MC=MR

In addition, making unnatural income by existing firms will cause new entries into the market. Firms that have losses turn off and leave the marketplace over time.

1

Monopolistic competition

The assumptions of an monopolistic competition market are almost exactly the same as the model of perfect competition. For instance, many competition, no entry barriers, the abnormal revenue is only available in a nutshell run and the businesses have perfect knowledge.

Characteristics of Monopolistic competition:

Large range of providers, and all of them are independent opponents with relatively small market show, therefore firms don't possess many incentives to collude.

In monopolistic competition, companies having heterogeneous products and that involve a great deal of non-price competition (based brand reputation and so forth).

Firms are not entire price-taker but a price-maker somewhat.

Short run equilibrium

Long run equilibrium

Hypothesis

A monopolistic market

To begin with, I hypothesize the bout among the list of restaurants and the institution canteen is monopolistic competition credited to many characteristics below:

1. There are present plentiful competitors

2. They don't produce same goods (some of them are similar)

3. They may have nearly perfect knowledge on the market prices

Also, I hold that the restaurants in Pingshan Street Community do unfit this characteristic as restaurants are usually more fitted with indie decision making.

As a result, it would possibly help the restaurants compete with the school canteen more effectively, avoid the competition with each other and gain more customers from the institution canteen with a certain degree of cartel or collusion among the number of blocks.

Such industry may have characteristics of both oligopoly and monopolistic competition.

Approach

For the goal of evaluating the hypothesis above, a design of research will be elaborated. To begin with, I produced a list that including the precise prices of the dishes in each restaurant to be able to compare the purchase price discrepancy. Moreover, the laundry I chosen are chosen from the menu that always be ordered by students in line with the market study questionnaire (Appendix 5) I designed. The laundry are present in the menu are for the purpose of representing a homogeneous assessment.

I will market research a percentage of the scholar body and take the initiative to carry out interviews with the head of Tianjin Experimental High School to get familiar with the point of view of university canteen management strategies.

With the further research of the info, we can deduce that whether the restaurants have produced collusion and what factors would impact consumers' best alternatives.

Data collection and analysis

The kind of restaurants competition market

In my hypothesis, I supposed that the Pingshan Road restaurants market has both characteristics of oligopoly and monopolistic competition. Now I am going to investigate what kind of competition virtually is it.

The variety of firms

Obviously, it is fairly hard to distinguish the type of competition simply by counting the amount of competitors on the market. In Pingshan Highway Community, the six restaurants I chosen are just an integral part of the market. Over the 3 kilometers long Pingshan highway, there are about 17 restaurants and caf available for the consumers (larger place always has more companies inside, but in such a small area, 17 is too much). The reason why I decided to go with this six restaurants are mostly because of its ingestion level is nearer to my entire life.

As the number of firms lowers, the firms have a tendency to behave more like oligopoly and less like monopolistic competition.

Market share

Secondly, an oligopoly market status relies more on the dominance of a few companies as opposed to the total number of firms in the industry. In here, it is extremely difficult to gather the statistics to be able to work out which restaurants dominant more sharing of the market.

Table 2 :

Research data of the breakfast time consumers' amount (from 7:00 a. m. to 10:00 a. m. )

Geographic Area

In other conditions, the geographic size of the marketplace is the perfect determinant of market composition. A particular industry might be monopolistic competition in a big city, but oligopoly in an inferior town. Retail sales offer a good example. Smaller places generally have fewer stores, perhaps a single super centre or retail center and a handful of stores positioned in a tiny area. Such market would be oligopoly.

However, we can plainly see from the satellite television picture below, that Pingshan Road is merely 2 kilometers long, it is relatively a little place for six or more restaurants to contend.

Pingshan Street Community

Barriers to entry

A key difference between oligopoly and monopolistic competition is the barriers to accessibility. The obstacles of oligopoly are extremely high. Nevertheless, there is no data support that the restaurants in Pingshan Street need any special federal agreement or relatively high start-up cost. Normally, the bigger places that the restaurants managed hinder a larger amount of preliminary investment. As the desk below proven, each restaurant chooses how big is their business area relating to their available capital. Maybe the admittance obstacles are high in early stages, but these access barriers can transform as time passes, and transforming the oligopoly into monopolistic competition.

Does it inclusive a certain degree of collusion between your homogenous cuisines for desire to to compete with others more effectively?

My original hypothesis is that a cartel between homogeneous cuisines would assist these to contend with others.

Due to diverse cuisines they provided in the Pingshan Road community, I divided them into three teams: Traditional Chinese cuisine, Xinjiang delicacies and junk food selling model. Then, I suppose that they performed have some sort of collusion, so that the restaurants advertising similar dishes would make an effort to charge exactly the same charges for their products.

Regarding the purchase price menus below, we can observe that the restaurants are charging different prices, meaning there is absolutely no price fixing included in this.

A new menu including every restaurant:

Lastly, theoretically the MC market share almost perfect information, but using their company attitude toward my tendencies while i was taking picture of the menu, I experienced extremely strong hostility and witnessed their awfully rude behaving.

Assuming all the restaurants have decided to become a member of the cartel, you may still find some severe problems included. Firstly, the quantity of restaurants is rather difficult to efficiently organize and connect. Secondly, the merchandise sold by restaurants are differentiated will impact the ability of monitoring and therefore sustainability of the cartel.

As an outcome, I reached the conclusion that my hypothesis of collusion among several blocks of restaurants cannot be proven.

The factors affect consumers' optimum alternatives (non-price competition)

Now I am going to further check out the non-price competition despite of different prices among the cuisines. To be able to investigate the grade of food and the facilities of each restaurant, I spent a whole week during the labor days' trip to flavour all the restaurants around. Because of this, I found that of their tastes is very delightful, however the sanitation of Lanzhou Noodles and Xinjiang restaurants is quite dreadful. Even though facilities of these two restaurants are quite bad, you may still find plenty of students would like to pay the bill for a yummy lunch (I conclude the declaration above by watching the numbers of consumer in those restaurants at the lunch time as below).

Table 2 :

Research data of the breakfast time time consumers' number (from 7:00 a. m. to 10:00 a. m. )

After my daily observation of particular restaurants, it shows that Lanzhou noodles and Shiweitian fast food are usually more competitive than others in the breakfast time. Since Chinese language people don't prefer rice for breakfast, but noodles is appropriate for an energetic start of a fruitful day. Also, the Shiweitian fast food offers a variety of traditional local breakfast time to the consumers from almost 6:30 a. m.

From table 4, we can see that almost all the restaurants hope to fulfill the needs of consumers to gain more regular customers by giving extra facilities and services.

However, fantastic facilities didn't provide them with an opportunity to attract the students. The prices they create are far overpowering students' functionality (who'll spend 40-80 RMB every lunch and still feel starving?).

If the restaurants are rivalling with the school canteen in terms of price, they might charge a lesser price than the canteen. By charging such price, the restaurants provide similar meals for customers will get more students from TEHS.

Compared with the school's prices, the prices of restaurants are highly uneconomical. Golden Stay and Ju Xing Yuan, they charging higher prices than others is principally because the type of Chinese food they provided are traditional food, and more places form a higher development cost. Another essential factor is that they have developed their brand loyalty (Appendix 5) already. On the ground of questionnaire final results, the brand devotion here is more likely to refer to the taste of the meals and the efficiency.

Moreover, the institution canteen no longer offer special meals to students in May, change to provide jam-packed lunch. After profound thought, I deduce that there are several reasons for canteen's transformation. First, the school canteen needs to consolidate its position as the prominent supplier in the market. Secondly, the changing flavor of restaurants acquired posed a risk to the advantage of canteen, as the tendency seems unstoppable, they diminish the offering of traditional Chinese dishes and put their eyes on the sales of food in type of fast-food selling setting.

In order to endure in this competitive market, some of the restaurants put intense effort on focus of the innovating new food, meanwhile, they are also struggling for types of special (even strange) titles for the old meals to entice vogue youths. Brand products of the same type (for example, cookies) are in monopolistic competition because they are not the same uniform item, but slightly different. Customers have to pay a higher price for brand name products, but they do not appear in your thoughts too much.

It is another information to support the vast array of new products is quite often the result of non-price competition, which frequently occurs in monopolistically competitive businesses.

As the data shown and analysis above, the non-price competition is actually existed one of the restaurant. We can conclude that the restaurants charge a relatively fair price at the first place and provide better facilities and environment are more popular than others.

The located area of the restaurants can also effect your choice that created by consumers. A very stimulating craze that I found is the so-call "direction phenomenon". It was created by myself and my classmates, as the map shown, on the right part of university there is only one restaurants-Shiweitian Junk food(we named it Food is God in English). Conspicuously, it enjoys their economies of scale. Its highly reputation was built by the effective command and management and well-trained faculty of Shiweitian Fast Food. The larger the organization is, the much more likely it is usually to be able to negotiate good agreements for the bulk buying of materials. The nice relationship among them guarantees the regular supply of fresh vegetables and meat every day. It is a typical benefit of economy of size.

As my research suggest, the aggravating atmosphere of the institution canteen and the unwelcoming services of things list at the top five reasons not to eat at school as well.

At the finish, I confirm that the more consumers feel something to be substantially different, the more lucrative the company will be (more unnatural profit in the brief run).

Conclusions

The purpose of my essay is to investigate the kind of competition in to the restaurants on the Pingshan Highway Community and the consumers' patterns under this type of competition.

It was found that restaurants operate under the conditions of monopolistic competition that characterized by the involvement of non-price competition. Furthermore, theoretically the company in this market has a certain power to set up the purchase price plus they wouldn't afraid of highlighted competition, but in the Pingshan Street Community the results is devastated. Yummy is a typical bad example for all your restaurants runners, it opened up in January of 2009 and closed down in May. Its incorrect expectation of utilization level directly effects the initial investment of the runner, and then result in. A restaurant should admit customers as long as the excess or marginal income exceeds the excess or marginal cost of

the last food served.

Hence, the info collected and examined suggested that my original view that this market has both the characteristics of oligopoly and monopolistic competition is untenable. All of them have no cartel or collusion to increase their revenue and gain more customers (actually they don't have to). Confronted with many contending brands in a monopolistically competitive environment, consumers can be thought to construct consideration collections based on pursuing factors to choose from among fighting brands. If an individual is going to be a fantastic administrator in the Pingshan Street Community, the average person should give goal to the optimization of an overall realistic prices. Then, as the research demonstrates, the non-price competition plays a pivotal role in the forex market. It is therefore crucial to offer better services and facilities and competent to differentiate the merchandise successfully. Improvement of consumers' commitment to brands will allows restaurants to keep up a comfortable position on the market because of this. Additionally, the positioning could also contributes to the restaurants' performance, especially during the terrible weather, the closer to school the more revenue will be made.

Evaluation

There are some constraints in my review. All the conclusions above derive from the assumption that students as the major consumers. There is no denying that still great customers like the workers or dwellers to acquire the products.

Overall, the ends up with this study can only just reflect the situation of restaurants market in Pingshang Highway Community, may not apply in more areas due to the untypical figure and immature market system. Further, price discrimination is also open through my investigation. It would happen, in the case that you will be a regular customer. The restaurants like Fantastic stay and Ju Xing Yuan, they don't have any restricted rules to check out, they'll do anything they can to make it through locally. If you buy more meals, then they will ask you for a relatively cheap. This phenomenon is not what I expected in the beginning and really should be further reviewed in future research.

Bibliography-acknowledgement

Books:

Gillespie, Andrew, AS & A level Economics through diagrams. Oxford: Oxford University or college Press, 1998

McGee, Matt. Economics- In conditions of the nice, the Bad and the Economist. Victoria, Australia: IBID Press, 2005.

GAns, J. , King, S. , & Mankiw, G. (2003). Principles of Microeconomics: Second Edition. Australia: Thompson.

Websites:

Tutor2U. Microeconomics-price discrimination.

http://tutor2u. net/economics/revision-notes/a2-micro-price-discrimination. html (Accessed July 24th 2009)

Tutor2U. Oligopoly.

http://tutor2u. net/economics/content/subject areas/monopoly/oligopoly_notes. htm (Accessed July 25th 2009)

Economicshelp. Price discrimination

http://www. economicshelp. org/microessays/pd/price-discrimination. html (Accessed Oct 2nd 2009)

Tianjin Shiweitian Fast food standard site.

http://www. tj-swt. com/index1. asp (Accessed May 5th 2009)

California State University, Chio.

Frederica Shockley personal blog

http://www. csuchico. edu/~fshockley/syllabi/monopolistic/ (Accessed Sept 15th 2009)

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