This is an excellent example of how the market responds (even if slowly) to consumer demands in the fast food industry.
Entrepreneurs with a good idea and executed with persistence can build their own niche brands and, as an unintended consequence, influence the behavior of the large chains in the restaurant buiness.
This article focuses on the "tween" burger business (not fast food and not casual dining, i.e. Chilis, TGIFridays, etc) and how their success has impacted the big boys in the fast food business.
As long as we have economic freedom and maintain conditions where competition is not limited/hindered, we will have more and better quality products available to choose from.
US burger chains beef up to keep up
""Top US fast-food restaurant companies are beefing up their hamburgers to keep up with an onslaught of competition from “better burger” chains, which have been gaining market share by offering premium meat and high-quality toppings.
McDonald’s started offering Angus beef hamburgers on fluffy buns, promising more thickness and juiciness. Rival Wendy’s now sells an eight-ounce hamburger, made from North American beef that is never frozen. And Burger King, trying to capitalise on greater health consciousness, is cooking “California” Whoppers, topped with fresh guacamole and ripe tomatoes.
Competition from better burger chains, which account for only about 3 per cent of the market, is good for the industry, according to Sara Senatore, restaurant analyst at Bernstein Research, because it gives consumers a new option priced between fast-food and casual dining. The focus on quality meats and toppings has forced industry leaders to sell healthier food.
“I think, given the demand environment, offering a premium-priced burger could make you raise your eyebrows a little bit, but it shows a continuing trend toward improved food quality,” Ms Senatore said. “All of the chains have ratcheted up the quality.”...
Gene, a question related to your title if not your post: What is economic "rent"?
ReplyDeleteFor Adam Smith I think it was a broader version of what "renting a home" is today: a payment to the owner of a natural resource. In his day, a payment to the hereditary land-owning nobility.
People today seem to use it to mean "interest".
Can you help me out here? Thanks.
Art--thanks for keeping me honest. I created the title then DID NOT actually write about the substance of the title, specifically "rent-seeking" as intended.
ReplyDeleteThe article did not lend itself to explaining rent seeking because the main players in the industry are not seeking help from "the govt" to limit competition, either formally or informally. I was going to write about the possibility of them doing just that but simply got lazy.
In my Advanced Placement Micro class students learn the difference between "Normal Profits" (FC + VC + Opportunity Costs--the entrepreneurial profits for the owners labor and/or his capital) and "Economic Profits, profits over and above normal profits. The presence of economic profits in the market(supposedly) sends a signal for firms to enter this industy, assuming "easy entry and exit". Presumbly there would be pressure on the market price of the good/service to decrease.
The threatened business may seek (1) tariffs on the good if it is an import, (2) import regulations that set an unreasonable standard for importing a good (emmisssions for vehicles, food safety requirements, etc) (3) or licensing/apprenticing standards. All effectively serve to maintain "economic profits". I ask students to remember this when they watch/read the news.
The term rent-seeking is more nuanced than this explanation, as you suggested above, but for high school students it gives them a framework for understanding the subtle and not so subtle dynamics of the business/goverment relationship.
When students begin to see examples in the news, they respond by saying "Thats not right!!"--that is my confirmation that they get the point... :)
Side note: I continue to be a daily "lurker" on your site. Good stuff and I will continue MY apprentice-ship to the Arturian way of thinking... :)