Competition Simulator Exercise: Questions

https://docs.google.com/spreadsheets/d/1A5A0pS14DdWUqmP4BBmmLWCgFhLadH8vW11vHzsx4Dw/edit#gid=1331010719

1) Competitive Product Positioning

Scenario 1: Positioning with fixed price

x Why is that the optimal position?

x If you were the first mover in this market (with fixed prices), where would you position

your motor?

x How would your optimal response (to MM choosing 90) and your optimal first mover

position differ if no customer accepted a 'distance' of more than 30?

Scenario 2: Positioning and price

x How does this compare to the outcome with fixed (and equal) prices? What explains the

difference?

x If you were the first mover in this market (with prices determined after positions are

chosen) where would you position yourself?

2) Competitive Capacity Choices

Second mover

x As CMC is more aggressive by building more capacity, do you become more or less

aggressive, i.e., do you build more or less capacity?

x (Optional Question: Why is that the case? Please consider this question only after

completing the full simulator exercise.)

First mover

x Do you prefer to be first-mover when choosing capacity or second-mover? Why?

x What is the effect of capacity pre-emption?

x What would be the effect of adding capacity in secret?

3) Price Competition

Second mover

x As MC becomes more aggressive by setting a lower price, do you become more or less

aggressive, i.e. do you lower or raise your price? How does that compare to your answer

for capacities (in the previous setting)?

x (Optional Question: What explains the similarities or differences? Again, please consider

this question only after completing the full simulator exercise.)

First mover

x Do you prefer to be first mover or second mover when choosing price? Why?

x Does it matter whether MC observes your price? Why?

x Why would a firm want to commit to a price? Why do we see price-leaders?

x When would you want to be very transparent in the price you set? When do you want to

make it difficult to predict your price?

x What explains the difference with being a first mover in capacity (or the difference with

capacity commitments)?

4) Number of Competitors

x As you face more competitors do you become more or less aggressive, i.e. do you lower or

raise your price? Why?

x Which markets are most competitive: those with few or with many competitors?

5) Capacity and Prices

x Is there any advantage to limiting your capacity? If so, why? If not, why not?

x How would this change if DD could not observe your capacity choice? What if you could

secretly change your capacity choice, without DD noticing?

x Suppose you could contract with DD on both capacity levels, would a different outcome

obtain?

x Suppose you are the first mover in capacity. Before your competitor has chosen capacity,

do you want to convince your competitor that you have a large or a small capacity? After

your competitor has chosen capacity, do you want to convince your competitor that you

have a large or a small capacity?

6) Market Size and Profitability

x What happens when the market size increases? What happens to prices? What happens to

BB's profits? Is it always good for BB if its market increases in size?

7) Technology Choice and Entry

x What happens when the incumbent's cost structure changes? What is driving this

outcome?

x If you were the incumbent and there was no threat of entry, which cost structure would

you choose? If you were the incumbent and there IS a threat of entry, which cost structure

would you choose? How can you accomplish that in practice?

8) Technology Choice

x Does the pattern make sense? Any examples that fit with this pattern? How do you think

economies of scale change with market size?

9) Capacity in Perfectly Competitive Markets

x How does bringing the plant online affect your profits? Why? What are your incentives to

invest in more plants? What do you think would happen if you took another plant offline?

What will happen in the long run?

x What makes this outcome more or less likely (e.g., in terms of the shape of the demand

curve or in terms of your size relative to the market)?

x How are profits of crude producers affected? How are consumers affected? Is this a zero-

sum game that simply transfers profits between parties?