Question

Merv's Hardware, a small family-owned store in Middletown, sells a 100-pack of garnet sandpaper for $35. The Home Shoppe, a large retail hardware chain in neighboring Morristown, sells the same product for $29. Based on this scenario, what would you expect Merv's immediate response to be?a) Merv will remove his advertisements and rely on word of mouth.b) Merv will reduce his price to respond to the price competition from the Home Shoppe.c) The Home Shoppe will initiate a non-price competition with Merv.d) The Home Shoppe will raise its price to respond to the price competition from Merv.

Answer 1

Answer: Merv will reduce his price to respond to the price competition from the Home Shoppe.

Explanation: Ideally, people always look for the best deal they can get. The home shoppe offers the same product for less price. Customers will naturally troop to the home shoppe because of the lower price of garnet sandpaper. In order for Merv to compete with a big store, he has to start with his prices first.