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?
