A long time ago, I worked at an advertising company and we had a photocopier. Right above our office was a magistrate court. Naturally, the court required people to make endless copies of various documents. So our machine was popular and brought in a small income, and we set the price at 4 rubles per sheet.

In the same building, there were two competitors: on the 5th floor above, copies cost 5 rubles, and in the lobby there was a machine with the same price. We were closest to the court, and to get to the competitors, people had to pass by us. As "experienced businessmen," we decided not to raise the price above the competitors, thinking that undercutting was the best value proposition.

Around the same time, at a university lecture, I heard about the concept of price elasticity of demand. Price elasticity of demand determines how much a percentage change in the price of a good leads to a percentage change in its demand: i.e., how many customers we lose if we raise the price by 10%. If we lose less than 10% of customers, demand is inelastic and customers will continue to buy even if the price increases. Realizing that we likely had inelastic demand, I suggested raising the price to 6 rubles. People wouldn't go up 5 floors to save a couple of rubles. But management was afraid that all customers would leave to competitors, so I proposed an experiment: if we set the price at 10 rubles and lose 50% of customers, we would still be better off compared to copies at 4 rubles, and if more than 50% left, we could try lowering to find the optimal price. We raised the price to 10 rubles, and only 2-3% of customers left. In the end, the price remained, and revenues increased significantly. Location is one of the strongest competitive advantages in offline business.

And you still undercut?