Practice · 1.2 Markets and Competitive Advantage

Bean & Brew vs. Daily Grind

Bean & Brew and Daily Grind are the only two coffee shops on a street next to a university. Each week about 300 students buy a drink on the street. Bean & Brew has study tables, outlets at every seat, and stays open until 9 p.m.; its latte is $4.00. Daily Grind has takeout only and closes at 6 p.m.; its latte is $3.50. Last week 180 students bought at Bean & Brew and 120 at Daily Grind.

1. Based on the information, what is Bean & Brew's market share of weekly drink purchases on the street?

A50 percentB60 percentC180 percentD40 percent

2. Bean & Brew's higher price and larger market share are best explained by which competitive-advantage strategy?

AProducing as efficiently as possible to charge the lowest priceBOffering better customer service and unique features that students valueCMaintaining a barrier to entry that keeps Daily Grind out of the marketDOperating as a monopoly with no competition

3. Suppose Bean & Brew cut its latte to $3.00, below its cost of $3.20, and its share rose to 75 percent. Which conclusion is best supported?

AIts competitive advantage has increased because profit always rises with market shareBIt has gained market share but is not capturing value, so higher share may not mean higher profitCIt has become a monopoly because it now has the majority of customersDDaily Grind must have left the market

4. When Daily Grind opened at $3.50, Bean & Brew lowered its price from $4.00 to $3.75 and Daily Grind later raised its price to $3.75. This sequence best illustrates

Athe formation of a prevailing market price through seller and buyer interactionBa monopoly protecting its positionCdifferentiation through more effective marketingDa barrier to entry