Case study Market Structure: Restaurant Industry

It is always tempting when looking at market structure to investigate the likes of Microsoft or the supermarkets but interesting cases can be found all around in relation to how firms behave and the complexities of analyzing market structures.

We tend to assume that monopolies, for example, are large firms who dominate national and international markets - this can be the case but is not always so.

Jamie Oliver is a famous TV chef: he made his name from the BBC TV series 'The Naked Chef' and a book of the same title. A contract with retailer J Sainsbury followed a year later in 2000, which reportedly made him a millionaire. He then produced a programme for Channel 4, entitled 'Jamie's Kitchen', which focused on training 15 unemployed youngsters in the catering business. The restaurant 'Fifteen' came out of that experiment.

Noted for his down-to-earth cockney persona and willingness to experiment and take risks with his food, as well as his passion for sourcing only the best ingredients, Oliver's restaurant was up there with the best in terms of the prices and reputation he garnered.

However, that reputation was called into question following the publication of a restaurant guide that was scathing in its criticism of Oliver's restaurant. The guide, Harden's, is written by those who visit the restaurants. Visitors to 'Fifteen' commented on the surly behaviour of staff, poor quality, uninspiring and expensive food and that the restaurant was devoid of atmosphere. The guide put 'Fifteen' at the bottom of 32 restaurants in its class - those being high priced restaurants. The average price of a meal at 'Fifteen' is around £70 per person.

'Fifteen' is a not for profit business and as such is a charity. Oliver's representatives have replied, commenting that the visitors' experiences were up to 18 months old and that measures had been taken to rectify the problems highlighted. The top chef in the guide was fellow TV star Gordon Ramsay. Ramsay's programmes have highlighted the commitment to the very highest standards in all aspects of the business and, so say his supporters, comes from having gained his experience as a working chef - something that Jamie Oliver had been accused of not possessing.

Tasks:

Consider the following questions:

1. Which market structure best describes the restaurant industry?

2. In what ways might a restaurant (i.e. «Fifteen») differentiate its product/service?

3. To what extent would you suggest that a restaurant such as «Fifteen» can exercise monopoly power?

4. On what basis could the market in which restaurant «Fifteen» is operating be termed an oligopoly?

5. In what ways could restaurants such as «Fifteen» behave in a collusive manner and what might be the benefits and difficulties of engaging in such behaviour? (There is no evidence or suggestions whatsoever that «Fifteen» or any other similar restaurant is engaging in such activity – this is a purely hypothetical question).

6. Evaluate the strategies that «Fifteen» could adopt to regain its market position.