A comprehensive exploration of how monopolistic competition shapes the restaurant industry, the impact of horizontal product differentiation, the role of substitutes, and effective strategies for sustaining profitability.
How would you characterize the nature of competition in the restaurant industry?
The primary objective of trade is to maximize profit over the scope of business operations. The token of logic surmised above increasingly ascertains the competitiveness of business operations, especially those that operate in the service industry, such as banks and restaurants. In particular, the restaurant industry is one of the most competitive service industries globally (Movahed, 2018, p. 2). The restaurant industry is an example of industries that increasingly exhibit monopolistic competition. The basis of this argument is widely based on the notion that restaurants have myriad market sellers, with each seller selling slightly differentiated products in the market. In a similar vein, thus far, restaurants are hugely characterized by the presence of submarkets harboring specific competitive pressures.
Are there submarkets with distinct competitive pressures?
Yes. Restaurants have distinct submarkets with competitive pressures. In particular, restaurants increasingly exhibit different types of product differentiation. One common aspect of product differentiation that is widely prevalent in this industry is the horizontal differentiation of products. Indeed, aspects of horizontal product disparities increasingly stem from the interplay of wide-ranging factors, including types of meals served, service offered by each restaurant, location, quality of the meals offered, and the décor and ambiance of the premises (Tsai et al., 2020, p.231). Competition and location of a restaurant increasingly determine the prices of said features. Customers find it convenient to travel shorter distances for meals instead of restaurants in distant locales, regardless of the quality of their services.
Are there important substitutes that constrain pricing?
Existing substitutes of meals prepared in restaurants comprise frozen dinners and home-cooked meals.
Given these competitive issues, how can a restaurant be profitable?
Restaurants can adopt and implement diverse operation techniques to circumvent the obstacles mentioned above to realize good returns. To begin with, restaurants can secure their profitability by creating a loyal return clientele. This could be achieved by producing and supplying quality products that meet the demands and needs of the several clients served by the restaurant (Movahed, 2018, p. 2). Nonetheless, selecting a strategic location for business operations is also vital to ensuring the profitability of myriad restaurants.
Reference List
Movahed, M., 2018. Quality Competition in Restaurants Industry: How Restaurants Respond to Fluctuating of Consumers’ Review. Department of Economics and Finance, Middle Tennessee State University, pp.2-6.
Tsai, S.C., Chen, Y.J. and Wang, J.H., 2020. The moderating effect of over-service on customer value: The case of the restaurant industry in Taiwan. Journal of Economics, Business and Management, 8(3), pp.230-234.
