April 27, 2009
Principles of Economics
Paper - The USA's Fast Food Industry
Fast food restaurants represent one of the largest segments of the food industry with over 200,000 restaurants and $120 billion in sales in the U.S. alone. Fast food restaurants, also known as quick service restaurants, are noted for their short food preparation time. Some of the largest players in this category include international giants like McDonald's and Yum! Brands, national chains such as Wendy's and Burger King and regional players like Jack In The Box and Sonic. Firms within the fast food industry fall under the market structure of perfect competition. Market structure is a classification system for the key traits of a market. The characteristics of perfect competition include: large number of buyers and sellers, easy entry to and exit from the market, homogeneous products, and the firm is the price taker.
Many fast food franchises fit all or most of these characteristics. Competition within the industry as well as market supply and demand conditions set the price of products sold. For example, when Wendy's introduced its $.99 value menu, several other companies implemented the same type of changes to their menu. The demand for items on Wendy's value menu was so high because they were offering the same products as always, but at a discounted price. This change in market demand basically forced Wendy's competition to lower prices of items on their menu, in order to maintain their share of the market. The previous example illustrates the elasticity of the fast food industry. Supply and demand set the equilibrium price for goods offered by franchises within the industry. Competitors of Wendy's must accept the prices established by the consumer demand for the value menu. If consumers didn't respond so positively...