Question

Two coffee houses near a college campus, the Coffee Club and the Rendezvous Room, compete for the same customers. To attract more customers, the Coffee Club is considering adding a blues musical group or a cheesecake counter. There is room to add only one of these. At the same time, the Rendezvous Room is considering adding a jazz musical group or a bagel counter. Again, there is only room to add one of these. The payoff matrix below shows the percentage increase in business for the Rendezvous Room for each option adopted by the Coffee Houses. The options are: No change, Add Blues/Jazz, or Add Cheesecake/Bagels.

A. What is the best strategy for the Coffee Club?
B. What is the best strategy for the Rendezvous Room?

Answer 1

Without the payoff matrix or additional strategic information, it is impossible to determine the best strategies for the Coffee Club and the Rendezvous Room. However, generally, businesses should consider each option's benefits and costs, and competitive responses. They should also apply principles of comparative advantage, as in the example of Maria and Charlie in the coffee shop.

Step-by-step explanation:

The question involves a scenario where the Coffee Club and Rendezvous Room are making strategic decisions to attract more customers. Both establishments are considering adding new features: one choosing between a blues musical group or a cheesecake counter, and the other between a jazz musical group or a bagel counter. The necessary data for determining the best strategies for each business, such as a payoff matrix, is missing from the question provided. Therefore, without additional information, it is impossible to determine the best strategy for either business.

In general, to understand the best strategy, these businesses should analyze the potential benefits and opportunity costs of each decision, as well as their target markets' preferences. Furthermore, assessing the potential competition's movements is essential in game theory to adopt the best responsive strategy.

In the example provided regarding Maria and Charlie, specialization allows each person to focus on producing the item they are more efficient at making, following the principle of comparative advantage. For the coffee shop, this means that Maria would specialize in making lattes and Charlie in making sandwiches, thus maximizing production efficiency and profitability.

Similarly, in the other example concerning monopolistic competitors, firms need to consider the potential for market entry by others and may need to adapt by innovating or distinguishing their services to maintain competitive advantage and achieve economies of scale.