How Much a Big Mac Costs in Different Market Types? | Free Essay Example

How Much a Big Mac Costs in Different Market Types?

Words: 1229
Topic: Business & Economics

Big Mac Prices from All over the World: Minor Discrepancies

Despite the fact that a lot of people view a clear connection between McDonald’s and the current economic state of the U.S., the assumption that the McDonald’s fast food affects the economy of the United States is wrong – instead, McDonald’s has a direct influence on the global economy. In fact, the Big Mac index has been invented in order to evaluate the currency rates at a specific point in time (Gillespie, 2014). The table below displays the current prices for a Big Mac in the world’s major states:

Table 1. Big Mac Prices in January 2014, by Country (The Statistics Portal, 2014; XE currency converter, 2014)

Big Mac Prices in January 2014, by Country

In the course of compiling the table, the necessity to convert the currency emerged several times. Consequently, a currency converter (XE currency converter, 2014) was used in order to translate the U.S. dollars to the Australian ones and then into the currencies used in the states listed in the table 1.

XE Currency Converter (a screenshot)
Picture 1. XE Currency Converter (a screenshot) (XE currency converter, 2014)

Price Analysis: What Explains Difference in Financial Policies

The difference in the prices listed above obvious; however, the reasons for such discrepancies are not. In order to research the issues underlying the concept of the purchasing power parity (PPP). According of the latter, the price of the product in question in a specific state must be equal to that in the U.S. with the adjustment of the exchange rate (Morse, 2013).

However, a closer look at the way, in which prices for fast food in general and McDonald’s hamburgers in particular are set in various states, one will discover that the process of setting the price for a Big Mac depends greatly on the GDP per person in the chosen area; in fact, the price for the product is in a direct proportion to the GDP per person (Hubbard et al., 2013). In other words, the lower the household income for a specific person of family is, the lower the price or a Big Mac is.

Indeed, a closer look at the table will reveal that the highest prices for Big Macs are set in the states with the greatest GDP per person, including Sweden, Norway, Switzerland, Venezuela, etc., whereas the countries with the smallest GDP suggest the smallest prices for the McDonald’s product (India, Malaysia, Ukraine, Hong Kong, etc.). Therefore, it is reasonable to assume that the development rates within a specific country define the price set for a Big Mac in it.

In other words, the Big Mac Index allows for defining the quality of the economic policy chosen by a particular state, as well as the efficiency of the state’s economic performance. While it clearly does not need to replace other ways of identifying the performances of different countries, it still provides a rather graphic and clear proof for the degree, to which the state economy has been upgraded over the past few years, as well as compare the economic rates of a particular country to the ones of the states all over the world.

It should also be noted, though, that the price for a Big Mac or any other product offered by McDonald’s relies heavily on the demand within a specific area. Unless customers are willing to pay the amount set by the company in order to get their Big Macs, it will be unprofitable and, therefore, unreasonable to set the prices that the target population will not be able to pay. It is essential that buyers should be able to afford the goods that a company sells; in McDonald’s case, it is crucial to make the products available to families, middle class people, businessmen, students, and other social strata within a specific country.

McDonald’s and Is Type of Market: Monopolistic Competition

As far as the type of market, which McDonald’s operates in, is concerned, one must admit that the company works in the realm of monopolistic competition. Indeed, a closer look at the specifics of the market will prove that there are, in fact, several major organizations controlling a comparatively competitive realm.

First and most obvious, the market is dominated by a number of organizations, With McDonald’s at the helm and KFC being its next rival in Europe and, primarily, in the United States, there are a range of companies that McDonalds can compete with. These are Subway, Pizza Hut, Burger King, Starbucks, a less well known Domino’s Pizza, Dunkin’s Donuts, Dairy Queen and Papa John’s (Overview of fast food market, 2012).

Next, most of these companies sell identical differentiated products (Starbucks selling coffee, McDonald’s providing fast food in general, Burger King specializing in burgers, Pizza Hut offering primarily pizza, Dunkin Donuts serving its customers sweets, etc.). Finally, the ease of entry is comparatively high, since fast food is quite cheap and simple to make.

Two Changes for Making a Difference in the Current Market

Seeing that increasingly numerous amount of competitors has entered the market recently, as well as the fact that the influence of the key rivals in the global economy has grown, McDonald’s will have to adopt a few changes, which will help it remain at the top of the fast food industry Olympus. In order to make the first step towards gaining a greater market share, the company will have to reconsider the demands from the target population.

On the one hand, McDonald’s has a devoted fan base, which consumes its products rather eagerly and would prefer for the organization to retain its unique set of products; on the other hand, the company is getting rather harsh criticism for producing the food that is considered to have a deplorable effect on the human body, leading to its fast deterioration and causing major health issues, particularly, obesity and CVD (Boone-Heinonen et al., 2011). Therefore, McDonald’s should integrate the production of healthier food into their menu as well, so that the proponents of a healthy lifestyle could also buy the company’s goods.

It would be wrong to make McDonald’s reinvent its entire production process – a shift from traditional hamburgers to entirely new food will entail a loss of most of the company’s clients (Clements et al., 2012). However, introducing a product or, better yet, a set of products, which would exist on par with the ones that are currently popular, will help the company retain its trademark Big Mac as its symbol and at the same time get rid of the criticism, which harms its reputation so much.

In addition to the shift towards the sustainability policy and the integration of healthier products into the set of services that the company provides, McDonald’s could also consider the idea of a merger or an acquisition. The fact that the organization has been not only staying afloat, but also maintaining a colossal success among the target audience without creating a partnership with a major brand is by no means a stroke of luck, but a result of an efficient strategy.

However, in the 21st century, this strategy seems to have worn out its welcome. Creating a merger with a company that will help McDonald’s offer its production to a wider range of customers will only benefit the firm, and the recent rumors concerning McDonald’s creating a merger with Connaught Plaza Restaurants, Ltd. may signify a welcome change of pace in the company’s strategies.

Reference List

Boone-Heinonen, J., Gordon-Lanser, P., Kiefe, C. I., Shikany, J. M., Lewis, C. E. & Popkin, B. M. (2011). Fast food restaurants and food stores: Longitudinal associations with diet in young adults: The CARDIA study. Archives of Internal Medicine, 171(13), 1162–1170.

Clements, K. W., Lan, Y. & Seah, S. P. (2012). The Big Mac Index two decades on: An evaluation of burgernomics. International Journal of Finance & Economics, 17(1), 31–60.

Gillespie, D. (2014). Not all Big Macs are created equal. Web.

Hubbard, G., Garnett, A., Lewis, P., & O’Brien, T. (2013). Essentials of economics. 2nd ed. Frenchs Forest: Pearson.

Morse, S. (2013). Indices and indicators in development: An unhealthy obsession with numbers. New York, NY: Routledge.

Overview of fast food market. (2012).Fast food marketing. Web.

The Statistics Portal. (2014). Global prices for a Big Mac in January 2014, by country (in U.S. dollars). Web.

XE currency converter. (2014). Web.