SMU Classification: Restricted

COR2100 ECONOMICS & SOCIETY

Group Project Guidelines and Report Sample
The group project requires the team to work on a project report which applies the
economic concepts of this course to a real-world business or economic issue. You
are free to select any article from the financial / economic journal or newspapers
(e.g. Wall Street Journal, Financial Times, New Your Times, and The Economist,
etc.) as your case study. In the appendix, I have provided you a highly stylized
example based on a more narrowly defined economic concept of market structure.
[Note: Although we did not cover the market structure “monopolistic
competition” in this course, the sample report attached is meant to provide you
some ideas on how to work on the group project.] You are allowed to use more
than one article if the articles are related to the same topic or issue. You are also
free to use any of the articles in the “Connecting-the-Dots” section of the eLearn
Content Page for your group project if the article has not been discussed in class.

Your Group Project Report will be assessed based on a 4-point scale for each of
the following attributes:

• clarity and conciseness of the case summary and discussion

• appropriateness in the application of the theory and concepts (supported by
diagrams and graphs where applicable)
• depth and breadth of the application of theory and concepts
• supporting evidence and / or reasonableness of assumptions made

The word limit for the group project report is 2500 words (not including charts,
tables and references). Note that this is the MAX limit, and NOT the MIN limit.
Your report may include the following sections:

• Case Summary
• Case Discussion
• Concepts Illustrated
• References

The due date for submission of the Group Project Report (to the designated
Dropbox on eLearn) is: 22.00 Hrs on Saturday, 08 April 2023.
 SMU Classification: Restricted

Appendix: Group Project Report Example

McDonald's Coffee Strategy Is Tough Sell
[Based on: WSJ - McDonald's Coffee Strategy Is Tough Sell, 27 Oct 2008.]

Case Summary:
In 2008, McDonald’s unveiled plans to roll out McCafé—a premium line of
coffee that includes cappuccino, latte, and iced mocha. About 3,000 of its 14,000
restaurants had already added the new McCafé line of drinks, but a downturn in
the economy had made it difficult for the remaining franchisees to secure funding
for remodelling and other expenses associated with the launch of specialty coffees.

The recession left some analysts questioning whether it was the right time for
McDonald’s to roll out its line of new specialty drinks. We discuss some plausible
reasons why McDonald’s embarked on the program, and whether it will have a
sustainable impact on the company’s bottom line, especially when the economy
rebounds and the remaining McDonald’s restaurants launch the new line of
McCafé drinks.

Case Discussion:
The appropriate market structure to use for our analysis would depend on how
we define McDonald’s products and services. If we consider McDonald’s to be
a hamburger restaurant, then the appropriate market structure to use is an
oligopoly model as there are only a few dominant firms in this market segment.
(Note to students: A good report would include some statistics on market shares to support this point.)
But if we broaden the definition of its product offering to fast-food in general,
then the appropriate market structure is monopolistic competition.

We can show and discuss the fast-food restaurant business as having many
features of monopolistic competition. Indeed, the owner of a typical McDonald’s
franchise competes not only against Burger King and Wendy’s but against a host
of other establishments such as Subway, Taco Bell, Chipotle, Starbucks and the
local coffee shops. In monopolistic competition, while each of these restaurants
offers quick meals at reasonable prices, the products offered are clearly
differentiated. Product differentiation gives these businesses some market power.

The McCafé program discussed in the news article was designed to further
differentiate McDonald’s from the competition. In so doing, McDonald’s hoped
 SMU Classification: Restricted

to increase its own demand by attracting customers away from traditional coffee
shops and other fast-food restaurants. If McDonald’s product differentiation is
successful, abetted by an effective advertising campaign, its demand will increase
over time (shift in the demand curve) as consumers substitute away from buying
the competitors’ products to buying McDonald’s products. Consumers’ demand
for McDonald’s may also become less price-elastic (i.e. steeper demand curve)
as they find McDonald’s expanded menu more palatable. The average total cost
(ATC) will also increase due to the cost of remodelling and retrofitting its
franchisees’ outlets to cater to the full beverage programme, plus any additional
advertising cost which McDonald’s may choose to incur. Here, the marginal cost
is assumed to remain unchanged, although it is likely to increase somewhat in
reality. Hence, as shown in the diagrams, it is possible that this strategy (of
introducing McCafé) may lead to McDonald’s earning economic profits in the
short-run.

While a monopolistically competitive business like McDonald’s might benefit in

the short run by introducing new products more quickly than its rivals, in terms
of earning positive economic profits, in the long run its competitors will attempt
to mimic the strategies that are profitable. This type of entry by rival firms would
likely reduce the demand for meals (and coffee) at McDonald’s and ultimately
result in long-run economic profits of zero. It is worth noting that a similar chain
of events occurred in 1978 when McDonald’s successfully launched its Egg
McMuffin. Other fast-food restaurants eventually responded by launching their
own breakfast items, which ultimately reduced McDonald’s share of the breakfast
 SMU Classification: Restricted

market and its economic profits. For these reasons, it may be difficult for
McDonald’s McCafé program to have a sustainable impact on its bottom line—
even if the economy rebounds and all franchisees implement the program.

It is interesting to note that McDonald’s had in Oct 2015 introduced its All Day
Breakfast menu, which was popular with consumers, and had a positive impact
on the bottom-line as it spurred same-store-sales growth for three straight quarters
following its introduction. However, during the subsequent earnings cycle,
growth fell short of Wall Street estimates, raising doubts yet again on whether All
Day Breakfast was a sustainable promotion for the company. From Sep 2016,
McDonald's shifted to an expanded All Day Breakfast menu that offers breakfast
fans a wider selection including McGriddles, McMuffins, biscuit sandwiches,
hash browns and hotcakes.

In summary, the key to earning and sustaining economic profits in a

monopolistically competitive industry is continuing product innovation and
differentiation, accompanied by effective advertising. One cannot afford to rest
on one’s laurels.
[Word count: 746 words]
(Note to students: The word count in this sample report is 746. Given the maximum word limit of
2,500, you should be able to work on a more substantive report.)

Concepts Illustrated:
Market Structure, Monopolistic Competition, Product Differentiation, and
Advertising

Article Used:
WSJ - McDonald's Coffee Strategy Is Tough Sell, 27 Oct 2008

Other Related References:

Baye and Prince – “McDonald’s New Buzz: Specialty Coffee” in Managerial
Economics and Business Strategy, Global Edition (8e)
CNBC - This is what McDonald's has to do to keep All Day Breakfast alive, 6
Oct 2016
WSJ - McDonald's Bets Big on All-Day Breakfast, 6 Oct 2015
WSJ - McDonald's to Expand All-Day Breakfast Menu, 6 Jul 2016
WSJ - At McDonald's, All-Day Breakfast Cools, 26 Jul 2016