a Second Mover As MC becomes more aggressive by setting a lo

a. Second Mover

As MC becomes more aggressive by setting a lower price, do you become more or less aggressive, i.e. do you lower or raise your price? How does that compare to your answer for capacities (in the previous setting)?

b. First Mover

Do you prefer to be first mover or second mover when choosing price? Why?

Does it matter whether MC observes your price? Why?

When would you want to be very transparent in the price you set? When do you want to make it difficult to predict your price?

How can you make price difficult to predict?

Have you seen examples of firms hiding prices?

Why would a firm want to commit to a price? Why do we see price-leaders?

What explains the difference with being a first mover in capacity (or the difference with capacity commitments)?

713804-XLS-ENG ()xlsx Excel FILE HOME INSERT PAGE LAYOUT FORMULAS DATA REVIEW VIEW Curtis, Michael X, AutoSum ? Times New Roma-12 .1 A\" A, 9- wrap Text B 1 u . ?. 2. A-\'? ??? ?Merge & Center- Fill Insert Delete Format s-% ,??Conditional Format as Cell Sort &Find;& Filter- Select Voltage Paste voltage Clipboard ES Clear Formatting Table Styles Styles Encryption Font Alignment Number Cells Editing 3) Price Competition You are a manufacturer of \"white box, modems, i.e., modems without a brand name, and have only one competitor in your market, MC. Despite the advanced nature of the product, \"white box\" modems are all very similar, so there is essentially no differentiation. Since you and your competitor both outsource production to the same firm, you have identical cost structures: no fixed cost and a per unit variable cost of $40. Moreover, outsourcing allows you to produce \'on demand, thus perfectly matching capacity to the demand that materializes. So you have only one choice left: what price you set for your modems. Your competitor has already (irreversibly) announced its price. Now it is your turn to choose your price. (Your competitor\'s price choices are not necessarily optimal. The focus here is orn how your optimal response depends on your competitor\'s choice.) Please find the best price for your modem under the differ in the price set by your competitor. (You should try out different prices to find the best one. To speed the process, it suffices to consider multiples of 5 for prices.) following 3 scenarios, which all have the same market structure but Your profit 2112 MC price Your price MC profit Scenario 1 72 1360 Scenario 2 3) Price Competition + 106% 9:18 PM 6/3/2018 READY

Solution

a) As MC becomes more aggressive by setting a lower price, you have to be more aggressive and further lower the price otherwise MC would capture the full market with the lower prices and you would have zero market share. Compared to the previous setting, you would still have the full market share but your total revenue would fall due to the lower price.

b) One should prefer to be the first mover while choosing price because of the first mover advantage i.e the initial significant occupant of a market segment. Yes, it would matter whether MC would observe the price. This is because, MC could follow the price and set a lower price to capture the full market.

c) One would want to be very transparent in the price setting when there are a lot of components to be added between the buyer and the seller. This is because, it would lead to building up of the trust amongst the buyers in addition to which it would be very difficult for the competitiot to imitate the same price structure. One would want it to make it difficult to predict price when the products are pretty simple and competitors can easily guess the price.

d) One can make price difficult to predict by making the supply volatile. For example, oil prices cannot be predicted mostly due to high volatility of oil supply.