8.1.08

PROFITS ATTRACT ENTRY. And markets equilibrate, although there's not a good dynamic model.

Starbucks has struggled in recent months as consumers have cut back on spending amid declining home values and higher fuel prices. Meanwhile, competitors like Dunkin' Donuts and McDonald's Corp. have cut into Starbucks' customer base by launching their own lines of gourmet coffee.

The Wall Street Journal, citing internal McDonald's documents, reported Monday that the world's biggest fast food chain plans to add coffee bars with baristas serving cappuccinos and iced coffees at its nearly 14,000 locations.

The article goes on to note that Starbucks' expansion left some in management dissatisfied with the company's ability to replicate its "experience." That's called the principle of increasing opportunity cost.

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