Describe the circumstances under which a firm chooses a low-cost strategy to attain sustainable competitive advantage

Week 2 – Discussion 1

  1. What is the marginal rate of substitution (MRS) and why does it diminish as the consumer substitute’s one product for another? Use examples to illustrate.Guided Response:
    In 300 words or more, please, provide your response to the above discussion question. Find two goods from your own consumption basket and explain how the MRS changes for the two products as you substitute one for the other.

Week 2 – Discussion 2

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  1. Please, read the article Hainer, R. (2010), provided in the required readings section for this week. The tobacco industry is a prime example to consider when talking about price elasticity of demand. While nicotine use can be addictive for many users, it is not addictive for the so-called “social smokers”.

What can we say about the price elasticity of demand for nicotine products (such as cigarettes, pipes, tobacco) in the group of nicotine addicted users, versus the group of “social smokers”? Can we say whose demand is likely to be more elastic? Why?

Guided Response:

Provide your response to the discussion question in 300 words or more. Further, comment on the effectiveness of government policy aimed at reducing the negative effects of smoking on health. For example, consider high taxation on producers? – is that effective?

Week 3 – Discussion 1

  1. Two partners own together a small landscaping business in North Carolina, called Summer Lawn Care. They have been specializing in summer grass seeding, installation, and maintenance. Recently, the partners acquired special technology and know-how for winter grass installations and maintenance. They also added a tree cutting service as recent storms in the area had caused demand for this service to soar. One of the partners insists that the name of the business should change to Lawn and Tree Care, so that it better reflects the range of services and, thus, generates more customer interest, and thus contracts. The second partner wants to keep the old name and argues, “We have already paid for business cards, vehicle paint, signage, and ads in Yellow Pages”.  Evaluate the arguments of the two partners. Explain and illustrate their points by identifying the relevant and irrelevant costs for this decision.Guided Response:
    In 300 words or more, please, provide your response to the above discussion question. Identify all the costs in the decision process, including explicit costs, implicit costs and sunk costs.

 

Week 3 – Discussion 2

  1. Explain what is meant by “contribution analysis”. Carefully define the term and provide examples to illustrate it.

 

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Guided Response:

Can you think of a recent example where you had to evaluate the incremental costs and benefits of different options in order to make a decision? In 300 words or more, please, provide your response to the above discussion question.

 

Week 4 – Discussion 1

  1. An interesting example of strategic behavior comes from a 1997 article about Microsoft’s investment in Apple (New Straits Times, 1997). The article is included in the Required Readings list. Facing tough anti-trust scrutiny from government agencies, Microsoft provided financial support to Apple in order to ensure Apple’s survival and, therefore, to ensure that competitiveness in the industry remains. Moreover, the partnership with Apple provided an additional market for Microsoft’s products – the MS Office and the IE products were to be bundled with the MAC OS as one of the conditions for this financing. Discuss this case in the context of market structure and strategic behavior. What market structure do these firms operate in? Why did Microsoft need to preserve competitiveness in the industry? What was Microsoft afraid of in the event that Apple did not survive?Guided Response:
    In 300 words or more, please, provide your response to the above discussion question. Further, do you think Microsoft regrets taking action in light of Apple’s performance today?

Week 4 – Discussion 2

  1. Bulls Eye department store specializes in the sales of discounted clothing, shoes, household items, etc. similar to the offerings at a regular Walmart or Target. Bulls Eye is the only department store in Show Low and the nearest other discount retailer is Target, located 49 miles away in Eagar. Bulls Eye, therefore, has some market power in its local area. Despite having some market power, Bulls Eye is currently suffering losses. An analyst at Bulls Eye is recommending to the manager to raise prices, so that profitability can be improved. The manager is unsure of this strategy as recent data points to increasing numbers of individuals shopping more and more. What are the pros and cons of raising the prices at Bulls Eye and would that strategy be profitable?Guided Response:
    Consider demand elasticity and market structure in your response. How is increasing of the price going to impact the company’s revenues given its demand elasticity? In 300 words or more, please, provide your response to the above discussion questions.

 

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Week 5 – Discussion 1

  1. Sometimes, a bidder on a work contract may bid lower than what would maximize his/her profit from the contract and the reason for that is to create goodwill (to increase expected future business from the buyer). How would you value the goodwill that is obtained in this way?Guided Response:
    Think about an example that pertains to you. If there is expected goodwill would you be prepared to bid lower to get a contract? Explain your reasons. In 300 words or more, please, provide your response to the above discussion question.

Week 5 – Discussion 2

  1. Bayer Schering Pharma AG, Germany owns Alka-Seltzer, which was launched in 1931 and was meant for relief of minor aches, pains, inflammation, fever, headache, heartburn, sour stomach, indigestion, and hangovers. Alka-Seltzer Plus was a spin-off of the original medicine, meant to relieve colds and flu.The company has recently introduced a new and improved Alka-Seltzer Plus, as described in this TV ad.

    The ad shows that Alka-Seltzer Plus can fight congestion, unlike NyQuil.

    Explain how Alka-Seltzer Plus has been quality and price-positioned in an existing market. In your opinion, has Bayer positioned their product appropriately in the market for cold and flu symptoms relief products? Would you advise Bayer to use a skimming or a penetration pricing strategy? Explain your reasoning.

    How do you think Proctor and Gamble, the company who produces Vicks NyQuil, would respond to the ad?

    Guided Response:
    In 300 words or more, please, provide your response to the above discussion question. If Bayer is currently making normal profits on most of the products in its product line, but is making pure profits on its new Alka-Seltzer Plus with decongestant, what should Bayer do to increase its profits?

 

Week 6 – Discussion 1

  1. Suppose that GE is trying to prevent Maytag from entering the market for high efficiency clothes dryers. Even though high efficiency dryers are more costly to produce, they are also more profitable as they command sufficiently higher prices from consumers. The following payoffs table shows the annual profits for GE and Maytag for the advertising spending and entry decisions that they are facing.

 

  GE 
 MAYTAG  
Advertising = $12m
Advertising = $0.7m

Stay Out
 
$0, $30m $0, $35m

Enter
 
$1m , $20m $12m, $15

 

Based on this information, can GE successfully prevent Maytag from entering this market by increasing its advertising levels? What is the equilibrium outcome in this game?

 

Suppose that an analyst at GE is convinced that just a little bit more advertising by GE, say another $2m, would be sufficient to deter enough customers from buying Maytag, thus, yield less than $0 profits for Maytag in the event it enters. Suppose that spending an extra $2m on advertising by GE will reduce its expected profits by $1.5 m, regardless of whether Maytag enters or stays out. Would this additional spending on advertising achieve the effect of deterring Maytag from entering? Should GE pursue this option?

Guided Response:

In 300 words or more, please, provide your response to the above discussion question. Please, show all your calculations and explain your responses.

Week 6 – Discussion 2

Describe the circumstances under which a firm chooses a low-cost strategy to attain sustainable competitive advantage. What about the situations when a differentiation strategy is chosen? Provide specific real world examples.

Guided Response:
In 300 words or more, please, provide your response to the above discussion question. You may research the current events websites listed in the recommended resources for ideas of real world examples.

 
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