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Business Environment and Economics - Research Paper Example

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(i) In a town centre there are two businesses, Hiphop and Gerries selling music CDs. If the price of CDs in both outlets is 10, the town's monthly sales are 2000. If the price is 11, sales are 1800. The wholesale price is 6. Charging the same price they share the market equally…
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Business Environment and Economics

Download file to see previous pages... It applies to Gerries also. Hence the dominant strategy of charging 10 will give a profit of 4000 when both of them charge the same price and a profit of 6400 when the other charges a higher price of 11.
In a duopoly situation, over a period both the players by experience arrive at a strategy to meet the other player's pricing and adapt his own pricing to the same as that of the rival. This in a way distributes the market more or less equally and makes both the players earn almost equal profits. For example in the instant case if both the players charge 11 as the price per unit then each of them gats a profit of 4500. This is higher than that of 4000 earned by them while charging 10 per unit. This result may be obtained by a pre-commitment between the rivals to match the prices and thus collude with each other.
(ii) Two fast food restaurant chains, BurgerBinge and McDennys, are considering outlets within the same small shopping mall. If they both begin operations they will each lose 100,000 pa. If only one sets up it will earn 250,000 pa. Profits.
The first mover advantage is derived by the firm which enters the market first by taking control of the potential sources available and to maximize their use to gain. This is a market situation that exists purely for the fist entrant and the subsequent players entering the market may not be able to get the same advantages that were available to the first entrant, unless there was a slack on the first entrant to maximize the advantages. In the given instant if both the firms decide to operate the existing market will have to be shared between both the players which results in a loss of 100,000 to each firm. This is due to the fact due to inadequacy of sales the firms might not be able to cover the fixed expenses which will result in a loss to both of them, as they both share the available demand. If one of them decides to stay away ...Download file to see next pagesRead More
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