3 Reasons for Coffee-holics to Celebrate

Coffee-addicts rejoice! There's a new coffee shop in town!  Its great to see new commerce in the downtown Milledgeville area and the Campus Theatre restored to its former glory.  But us Freakonomics-reading, market-watching, Keynes/Hayek-arguing caffeine junkies are excited about three other things: More coffees being offered, higher quality of coffee, and lower prices.  This isn't a plug for the college's new coffee shop, this is a market effect that should have implications at Blackbird as well.  Easy economics (and awesome graphs!) can explain:

Formerly, there were only two significant coffee shops within walking distance of campus for college students to get their morning cup of Joe: Books and Brew and Blackbird (Einstein's and Seattle's Best in the Bobcat Food Court can be ignored because they have such a small market share).  Remember back to Principles of Micro/Macro that when there are only a few businesses it creates an Oligopoly? This is a perfect oligopoly situation. Because each company had only one competitor, they were able to charge higher prices and offer a smaller selection of coffees and pastries than if they had lots of companies to compete with. Look at the graph below. Remember Price is on the Y-axis, Amount of coffee selections is on the X-Axis. Notice how the oligopoly price is above the socially efficient price (socially efficient is where the price would be if there were an infinite amount of coffee shops in Milledgeville all competing with each other. I would visit each, daily.)  Also see how the Oligopoly amount of coffee provided is lower than the socially demanded.  Shame on you Books and Brew for holding back!

Because there is a new competitor in town, Jittery Joes, the number of coffee shops (expected) to have a large market share will increase 50% to three.  This will greatly increase the amount of coffee for sale.  And remember, when Quantity Supplied increases, Price goes down. The next graph shows this in an Aggregate Supply curve (Aggregate just means it represents the entire industry, its just the supply from all the coffee shops added together).  Aggregate Supply 1 is where the market currently is with the two coffee shops.  Aggregate Supply 2 is the new supply curve which includes Jittery Joes. Notice how the price goes down. Yay for cheaper coffee!

Increases in competition also has an effect on quality.  With this new shop entering the picture, we can expect preexisting coffee shops to step up their quality, use fresher beans, keep the stores cleaner, and even be more friendly when you cheap college students don't tip them.  This is because they will be fighting to keep the customers they have, knowing that one sub-par experience could lead that customer (and revenue source) to another shop that offers an experience slightly better than theirs.

So what we have to look forward to from Jittery Joes coming to Milledgeville:

Lower Prices, Better Quality, and More Menu Items from all the local coffee shops. Thank you Joe!

-Brandon