Canine Grooming Salon Competition: Elegant Dogs vs. Dazzling Dogs
What is the scenario between Elegant Dogs and Dazzling Dogs in the canine grooming salon competition?
Both companies serve 4,500 customers per year and charge $35 for grooming a dog. Elegant Dogs pays fixed salaries, while Dazzling Dogs pays $10 per dog groomed. Elegant Dogs lures 2,000 customers by lowering its grooming price to $25, while Dazzling Dogs maintains its $35 price. Which company will be affected in terms of profits?
Answer
The scenario between Elegant Dogs and Dazzling Dogs showcases a competitive market where changes in pricing strategy can impact profits. In this context, Dazzling Dogs will experience a decrease in profits greater than the increase in profits for Elegant Dogs.
Elegant Dogs and Dazzling Dogs are competing canine grooming salons with similar customer bases and grooming prices. However, Elegant Dogs' decision to lower its grooming price attracts more customers, resulting in a gain of 2,000 customers from Dazzling Dogs.
While Elegant Dogs' profits will increase due to the influx of new customers, Dazzling Dogs will face a reduction in profits as their customer base diminishes. The fixed salaries paid by Elegant Dogs do not fluctuate with the increase in customers, allowing them to benefit from the competitive pricing strategy.
The decrease in salary expense for Dazzling Dogs, amounting to $20,000 from paying $10 per dog groomed for 2,000 customers, contributes to the overall decline in profits for the company. As a result, Dazzling Dogs' profits will decrease more than Elegant Dogs' profits will increase.