Question

The firm worries that having two stores this close may create ___________ and "steal" business from the original Starbucks location.

A. cannibalization

B. shrinkages

C. externality costs

D. competition costs

Answer 1

The correct answer is Option A.(Cannibalization).

The firm worries that having two stores this close may create Cannibalization and "steal" business from the original Starbucks location. Cannibalization means loss of sales of original product due to the introduction of the new product. This happens in case of companies who have introduced a new product and new product is liked more than the original one. For example, Apple introduced I Phone 5S sales lead to drop in the sales of I Phone 5C. The customers are buying from the same company but they have shifted the product preference.