Alliance Catering at Deakin: the Economics of University Cafeterias

Abstract

University cafeterias are a common and crucial component of university life as they provide cheap and convenient meals for students. Ideally, university cafeterias should also be responsible for providing nutritious food at reasonable prices. In practice though, university cafeterias often provide less nutritious food and at high prices. One reason for why this may happen is that cafeterias are aware of their unique market power. For instance, students consider the opportunity and transportation costs in the price they are willing to pay for on-campus services. The costs of preparing meals at home or walking to the alternatives are high, as students may prefer to use the time for studying or socializing. Thus, for a variety of reasons, university cafeterias become more practical in their delivery of services by placing less concern on the health quality of products and the fairness of prices. In this paper, we study the market power of university cafeterias specifically due to a locational advantage by analysing the case of the Alliance Cafeteria operating in Buildings La and Lb at Deakin University’s Burwood campus in Melbourne. We begin by examining Alliance as a monopolistically competitive firm and assess how its location gives market power.