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An Economic Analysis

In: Business and Management

Submitted By c080711
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Introduction: When people purchase a cup of coffee in cafes, they also reserve the right to a seat for them to enjoy the coffee. In that sense, the money a consumer pays in the café is not only for the cup of coffee but also for the seat that he or she may or may not use. In economic terms, the coffee and the seat can be seen as complements. Consumers pay for an “invisible” bundle, which is composed by a cup of coffee and a seat. For café owners, their goal is to maximize their profit. Hence, the cost of the seat, which seems to be free, is actually contained in the coffee price. This is the traditional strategy of a café (“first strategy” in latter passage). However, a phenomenon is observed in China. With the increasing number of freeloaders, people who enjoy the seat without any purchase, private firms start to use a new strategy (“second strategy” in latter passage). They charge a sitting fee, which costs less than a typical cup of coffee, to those freeloaders. It is clear that such a policy is implemented to guarantee the café’s profit. As Singapore is also starting to observe an increasing trend of freeloaders, we are interested in which strategy is more suitable to be implemented by café. Research method & Survey: Our research is based on the hypothesis that the second strategy is going to be implemented in Singapore. Since coffee remains the same in the two strategies, we are going to draw our conclusion by analyzing a consumer’s willingness-to-pay for the seat. We assume the strategy that yields higher willingness-to-pay will be more suitable to be implemented as consumers could receive a higher utility from the seat. A survey is conducted online to collect the consumers’ willingness-to-pay with regard to the two different strategies. Our participants mainly comprise of tertiary students residing in Singapore whose age range between 18

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