Question

decision point: choosing your strategy
you meet a friend of yours for lunch. he is a supplier of coffee machines. while talking business, you mention to him that youve decided to use the principles of supply and demand to determine the market price for the coffee you plan to sell at your kiosk on campus.
he suggests that youre making a lot of work for yourself, and you should just set your price based on the prices charged by your competitors. however, youre apprehensive about using that approach.
which would be the best argument in favor of your decision to use the principles of supply and demand?
select an option from the choices below and click submit.

• using the principles of supply and demand, data is less expensive than spending time and resources to learn about the prices charged by your competitors.
• the price your competitors charge is based on the costs that they incur and the market in which they operate, and these may be different from yours.
• the market price that you determine by using the principles of supply and demand will be accurate and will ensure a high market share.

Explanation:

• For the first option: Data for supply - demand isn't necessarily less expensive or easier to get than competitor price info, so this is not a strong argument.
• For the second option: Competitors' costs and market conditions (like their target customers, location - specific costs) can differ from yours. So relying on their prices might not fit your kiosk's situation, while supply - demand considers your own market (campus) conditions. This is a valid reason.
• For the third option: Using supply - demand doesn't guarantee high market share as market share depends on many factors like quality, marketing, etc., so this is an overstatement.

Answer:

B. The price your competitors charge is based on the costs that they incur and the market in which they operate, and these may be different from yours.