Week 1 Discussion
DQ 1 Firm Objectives. Why do some business firms pursue a
triple-bottom-line outcome while others focus only on profit maximization?
Please, use a real company example to illustrate your points
DQ 2 Decision Making Under Uncertainty. To save on gasoline
expenses, Edith and Mathew agreed to carpool together for traveling to and from
work. Edith preferred to travel on I-20 highway as it was usually the fastest,
taking 25 minutes in the absence of traffic delays. Mathew pointed out that
traffic jams on the highway can lead to long delays making the trip 45 minutes.
He preferred to travel along Shea Boulevard, which was longer (35 minutes), but
rarely had traffic jams. Edith agreed that in case of traffic jams, Shea
Boulevard was a reasonable alternative. Neither of them knows the state of the
highway ahead of time.
After driving to work on the I-20 highway for 1 month (20
workdays), they found the highway to be jammed 3 times. Assuming that this
month is a good representation of all months ahead, should Edith and Mathew
continue to use the highway for traveling to work?
How would you conclusion change for the winter months, if
bad weather makes it likely for traffic jams on the highway to increase to 6 days
per month?
How would your conclusion change if Mathew purchased a new
smart-phone app that could show the status of the highway traffic prior to
their drive each morning, thus reducing the probability of them getting into a
jam down to only 1day per month (where on this day, the app showed no traffic
jam, but a jam developed in the meantime as they were driving along the
highway).
Week 2
Discussion
DQ 1 Marginal Rate of Substitution. What is the marginal
rate of substitution (MRS) and why does it diminish as the consumer substitutes
one product for another? Use examples to illustrate
DQ 2 Demand Elasticity. 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?
Week 3
Discussion
DQ 1 Relevant Costs. 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.
DQ 2 Contribution Analysis. Explain what is meant by
“contribution analysis”. Carefully define the term and provide examples to
illustrate it.
Week 4
Discussion
DQ 1 Strategic Behavior Oligopolies. 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?
DQ 2 Local Market Power. 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?
Week 5
Discussion
DQ 1 Good Will in Price Bidding. 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?
DQ 2 New Product Introduction. Bayer Schering Pharma AG,
Germany owns the 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. The 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 the TV ad: “The Cold Truth”, (please, watch
the ad listed in the Required Readings)
The ad shows that Alka-Seltzer Plus fights cough, body
aches, runny nose, sneezing and fever, just like Vicks NyQuil does, but it also
now can fight congestion, unlike NyQuil.
Explain how the new 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?
Week 6
Discussion
DQ 1 Game Theory and Strategic Behavior. 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.
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?
DQ 2 Sustainable Competitive Advantage. 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.
