Starbucks can be looked at as a perfect competition market because it conforms (to a certain extent) to the four conditions. There are 16,226 around the world, meaning there are a large number of sellers, and for a company to have that many stores they need to have a large number of customers to sell to but all stores are fairly small. The second condition that customers don't show a preference is true because all of the coffee is the same and so if the customer was to go to any Starbucks they would receive the exact same product. The third condition that entry and exit from the market is easy is true to Starbucks because as we have seen from the articles they are able to close many stores and it does not impact the business by much. They open and close stores regularly and this does not seem to have a huge impact on the other stores. The final condition that producers should not have an advantage over other purchasing producers is true because all of the stores operate exactly the same and if a new technology came out then eventually all stores would be required to use it.
With all those new improvements to technology and other time saving mechanisms Starbucks grew quite quickly and is definitely no longer just a neighbourhood store. In March of 2008 there were 16,226 stores across the world, according to an article by CBC News, with 7,257 of these stores located in the United States. But the plans changed and Starbucks realized that there was a recession happening in the US, and still is, and people were not purchasing their tall, non-fat, skinny Lattes as often. This led to the closing of 600 stores and layoffs of 12,000 employees in the US, with Florida and California being the hardest hit. Although Starbucks intended on continuing to open stores in other places they still needed to close these stores. The long-run costs for closing the stores would save them money in time but in order to shut the stores down they were required to pay out $8 million in severance pay and upward to $140 million in termination penalties of leases and rent. In one of the articles, Seattle Times, they talk about how "many of the unprofitable stores were being cannibalized by nearby Starbucks locations". From my own experience of travelling to certain Provinces and States I have noticed the number of stores that are within short walks from each other. It was as if a Starbucks was on every corner in some places. I can't see them loosing too much profit from the stores that are close to other Starbucks' but they have to lay off employees who could potentially have a hard time finding more work.
I am not a coffee drinking myself but a lot of my friends are and they drink Starbucks on occasion. I have gone in there with them and purchased overpriced tea but being in the stores I get the feel of a chain store every time I am in one. They are popping up everywhere just like Tim Horton's and McDonalds. There is nothing that is unique about any one store but apparently their coffee is better than Tim Horton's. I once heard a friend say that if they were to offer coffee to a client in a building that had both Tim Horton's and Starbucks they would have to buy them Starbucks because it is considered a higher end coffee. For this reason I think they can charge more for their drinks. They also offer more options than a simple coffee shop like Tim Horton's. If they were to lower prices I think their sales would increase and they would be a lot busier but eventually they would start to lose money.
