Assignment no 1
Part A (25%) (250 Words)
In a town centre there are two businesses, Hiphop and Gerries selling music CDs. If the price of CDs in both outlets is 11GBP, sales are 1800. The wholesale price is 6GBP. Charging the same price they share the market equally. However , if one charges 10GBP, whilst the other charges 11GBP, the lower priced outlet sells 1600 per month and higher priced outlet sells only 360.
Construct a pay off matrix showing the options available to the two firms and the profits they will make in each case.
Explain briefly with reference to the pay-off matrix whether the firms have a dominant strategy.
Explain how a mutual precommitment to match the rival’s prices might enable the retailers to collude successfully.
Two fast food restaurant chains, burger binge and McDennys, are considering outlets within the same small shopping mall. If they both begin operations they will each lose 100,000 GBP pa. if only one sets up it will earn 250,000 GBP pa. profit.
Draw up the pay-off matrix.
Use the mstrix to drfine and explain the notion of “first mover advantage”.
Part B (75%) (1250 words)
Industry profitability depents upon just five factors, the so-called “five forces”, argues Michael prter. Explain and Critically evaluate this claim referring in particular to one industry.
Guidance.
Carefully select an industry on which there is an up to date mintel report. Access the report at http://reports.mintel.com/ , using your Athens password. As a counter plagiarism measure you must use an industry report published in 2006 or 2007
Define the industry precisely, noting the principal business, markets shares, growth and any special features. Assess whether your judgement of the strength of each of the “five forces” would predict a level of performance consistent with the industry’s actual performance.
Consider whether there are other factors affecting performance in the industry.
Come to a clearly argued conclusion either agreeing or challenging the validity of the porter thesis with regard to the industry to the industry you have investigated.
Credit:ivythesis.typepad.com
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