Specialty Coffee

1. Describe the market for specialty coffee near University of Virginia.
They sell their largest coffees with a higher price than the short ones, but it’s cheaper per- ounce prices than the shortones. They use the 2nd degree price discrimination because the efficiency it’s at his top on the smaller coffees. While Greenberrys and Higher Grounds have their prices regulated by the university, itwasn’t a problem to discriminate prices. They opened at different periods, while Starbucks opened at the morning (people preferred the drip coffee from Starbucks), Greenberrys opened at the evening(people preferred at that time sweet espressos from Greenberrys)

2. Describe the main features of the empirical model.
* Consumers made one purchasing decision
* There are 3 periods:morning, evening, afternoon
* All purchases of inside goods are limited to the coffee shops in the market
* A wide variety of coffee and espresso drinks are available in the market, but all relevantbeverages fall into one of three categories: drip coffee, regular espresso and sweet espresso.
* Across periods, there may be differences in the market due to the identities of open shops, thelocation and number of consumers, or other market-wide common factors that shift the demand for coffee.

3. How are identification problems solved?
* Consumers’ locations.
* Unobservedidiosyncratic tastes for the offered products.
* time-varying market characteristics

4. Describe the econometric strategy to test whether there is evidence of non-distortion at the top.
A consumeris unwilling to increase the size of his drink if the additional expense exceeds his value from the increase, but if the cost difference is relatively small, it may be efficient for the consumer to havea larger product. Thus, a large value for a pair of products leads to inefficient allocations. Drip coffee and regular espresso have relatively large average values of P − C, at $0.22 and $0.23,...