Question

The Starfire Coffee chain was the only coffee-shop chain and meeting place in many American cities for more than 12 years. People paid $5 for a mug of peppermint coffee and the experience of sitting in front of a roaring fire, chatting with friends. Twelve years after Starfire's appearance, a similar coffee-shop chain, Reindeer Brews, entered the marketplace. Reindeer charges $3 for a mug of hot cocoa and a similar community experience.

How would you characterize this scenario?

- Non-price competition in a monopolistic market
- Non-price competition in a purely competitive market
- Price competition in a monopolistically competitive market
- Price competition in a purely competitive market

Answer 1

Price competition in a monopolistically competitive market

Answer 2

Answer: In this particular case we can reason that this scenario represents monopolistic-ally competitive market.

Both coffee house are offering a similar product and commodity, with only little differentiation in their design.

i.e. The Starfire Coffee chain provided consumer with peppermint coffee and the experience of sitting in front of a roaring fire, chatting with friends.

whereas Reindeer provided consumer with a mug of hot cocoa and a similar community experience.