Many Starkville residents lament the impending arrival of an additional Starbucks. They fear Starbucks poses a threat to the future of their favorite locally owned coffee shops. Shane Reed, Strange Brew Coffeehouse owner, and Havilah Couvillion, co-owner of Nine-twentynine Coffee Bar, share their viewpoints about the new shop coming to town.
Let us put on our economic lens and examine what happens when new competition enters the market and why Starkville coffee lovers should be excited about the new Starbucks, whether they like Starbucks’ coffee or not.
F.A. Hayek, Nobel Prize winning Austrian economist, describes competition as the set of activities which businesses engage in as part of the discovery process — discovery of knowledge, to be precise. The process of competition reveals information about prices, consumer preferences, innovation and value. Hayek explains this competitive process benefits society as a whole. Competition benefits consumers in multiple ways. It drives down prices, improves quality and improves service. All of these points should make coffee-loving Starkvillians happy.
In past articles we explained consumer choice reveals information about what they value. Therefore, if consumers choose to go to the new Starbucks rather than Strange Brew or Nine-twentynine, the choice reveals that consumers prefer Starbucks’ products and services. The choice also reveals consumers are willing to purchase these goods at the price which Starbucks offers them. When competing coffee shops see this revealed information about consumer preferences, they improve their business so they may stay competitive in the market. The result is good for both the consumers and the businesses. The effect is that it encourages other coffee producers, such as Strange Brew and Nine-twentynine, to innovate, improve quality and service and differentiate themselves. With the new arrival of Starbucks, Strange Brew may find a way to improve its drive-thru service to compete with Starbucks’ speedy service. An additional possibility is the emergence of new drinks or food added to the menu to capitalize on customer preferences. Customers may find baristas more friendly or helpful in providing excellent service.
Before Starkville residents voice their disapproval of the new Starbucks, they need to take time to consider all of the intended and unintended consequences that arise when new competition enters the market. The arrival of new competition may lead to an overall better experience for consumers. It may strengthen the desire for local coffeehouses. Competition also forces the businesses to improve. Whether or not someone likes Starbucks, he or she should welcome the competition and the improvements that come with it. When it comes down to it, an economist would never consider more competition a bad thing.
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Consumers win with coffee competition
Brian Greco and Kim Pettit
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March 4, 2014
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