> Say the $3 company can't actually retain any workers because their pay is so bad. They will not be serving any $3 coffees, so it's not a threat to the $10 coffees.
The $3/coffee company will likely still find workers who are willing to work for what the company is willing to pay. Thus there is a market-established price for the labor and the floor is a legislatively-established price-control called the minimum wage. It’s not high skill work and you can train someone in a day to operate a drip brewer and an espresso machine.
> Also, your example prices sure are, uh, interesting and hard not to read in to.
There’s nothing much to read into there. I rounded up the $3 option to be generous to the opposition and overstated with the $10 option as a point of comparison that you cannot simply arbitrarily charge more without additional value-add and expect to retain your customers. Seniors on fixed incomes will complain all day about coffee costing even $2, or a single cappuccino going from $2.25 to $3.5 over the course of a few years.
Low margin is not no margin. As long as there is a margin, this remains true for some level of cost increases.
And your example is excessively reductive. Say the $3 company can't actually retain any workers because their pay is so bad. They will not be serving any $3 coffees, so it's not a threat to the $10 coffees. Also, your example prices sure are, uh, interesting and hard not to read in to.