2.

Evaluate Dynamic Steel’s situation. What should Dynamic Steel do?

Dynamic Steel is one of two major producers of wide-flange beams in the United States. The other producer is USX. A number of small firms also compete, but they tend to compete mainly on price in nearby markets where they can keep transport costs low. Typically, all interested competitors charge the same delivered price, which varies some depending on how far the customer is from either of the two major producers. In other words, local prices are higher in more remote geographic markets.

Wide-flange beams are one of the principal steel products used in construction. They are the modern version of what are commonly known as I-beams. USX rolls a full range of wide flanges from 6 to 36 inches. Dynamic Steel entered the field about 30 years ago, when it converted an existing mill to produce this product. Dynamic Steel’s mill is limited to flanges up to 24 inches, however. At the time of the conversion, Dynamic Steel felt that customer usage of sizes over 24 inches was likely to be small. In recent years, however, there has been a definite trend toward the larger and heavier sections.

The beams produced by the various competitors are almost identical—because customers buy according to standard dimensional and physical-property specifications. In the smaller size range, there are a number of competitors. But above 14 inches, only USX and Dynamic Steel compete. Above 24 inches, USX has no competition.