The difficulty is that if some of your products are cheap, you may lose money from customers who would willingly have paid more. So, businesses try to discourage their more lavish customers from trading down by making their cheap products look or sound unattractive, or, in the case of Starbucks, making the cheap product invisible. The British supermarket Tesco has a "value" line of products with infamously ugly packaging, not because good designers are unavailable but because the supermarket wants to scare away customers who would willingly spend more. "The bottom end of any market tends to get distorted," says McManus. "The more market power firms have, the less attractive they make the cheaper products."
That observation is important. A firm in a perfectly competitive market would suffer if it sabotaged its cheapest products because rivals would jump at the opportunity to steal alienated customers. Starbucks, with its coffee supremacy, can afford this kind of price discrimination, thanks to loyal, or just plain lazy, customers.
The practice is hundreds of years old. The French economist Emile Dupuit wrote about the early days of the railways, when third-class carriages were built without roofs, even though roofs were cheap: "What the company is trying to do is prevent the passengers who can pay the second-class fare from traveling third class; it hits the poor, not because it wants to hurt them, but to frighten the rich."
The modern equivalent is the airport departure lounge. Airports could create nicer spaces, but that would frustrate the ability of airlines to charge substantial premiums for club-class departure lounges. |Starbucks Economics|
Just to be clear, the point as I see it is that 'efficiency' when used in defense of capitalism doesn't mean the same thing that it's taken to mean when used in a critique of command economies. When criticizing command economies as inefficient, the clear sense of the objection is that the economies are to be condemned because they do not produce a high ratio of goods to inputs. In contrast, when corporations are praised for their efficiency what is meant is that they produce a high ratio of profit to investment. What these examples demonstrate is that the highest profit/investment ratio is not the same as the highest goods/input ratio. Natch.