Type: Analysis
Pages: 1 | Words: 300
Reading Time: 2 Minutes

In the article, “Starbucks Economics — Solving the Mystery of the Elusive “˜Short’

Cappuccino” by Tim Hartford, Slate (January 6, 2006), Starbucks is trying to make the cheaper cappuccino for its clients. Firstly, they are doing so, because there might be imperfect competition, otherwise price discrimination would be unnecessary. The lower price for smaller cappuccino is not mentioned in the menu board. The producers are changing the market price, because there might be imperfection of the market. Secondly, price discrimination is satisfied here by selling smaller cappuccino by lower prices according to customer type or overseas customers. Those who are able to pay more would not be satisfied with lower prices. Therefore, the producers and sellers may lose rich customers, who are willing to pay more for the product. Thirdly, price elasticity of demand in Starbucks may be reduced in order to increase its profits and revenues.

The article shows how Starbucks split the market into consumers with low and high willingness to pay. Those, who are willing to pay more for traditional size cappuccino, can find the price in the menu board. On the other hand, those customers, who are willing to pay less, are proposed to get smaller cappuccino by whisper. This is not usual for serving clients in the Starbucks cafes.

The author claims that the marginal production costs of a small coffee are the same as a large one, because it consists of the same amount of coffee. He also claims that the shorter cappuccino, the better, but tastes differ.

The author mentioned that the early railway companies segmented consumers by building third-class carriages without roofs. To my mind, this is not an example of price discrimination. It is rather can be viewed as people`s discrimination. This was done, because the rich did not want to interact with the poor.

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