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Consider a company faced with a competitor's price reduction. Should the company also reduce price in order to maintain market share or should the
Consider a company faced with a competitor's price reduction. Should the company also reduce price in order to maintain market share or should the company maintain its current price? The company has conducted some preliminary research showing the financial outcomes of each decision under two competitor responses: the competition maintains its price or the competition lowers its price further. The company feels pretty confident that the competitor cannot lower its price further and assigns that outcome a probability (p) of 0.8, which means the other outcome would have only a 20 percent chance of occurring (1-p=0.2). These outcomes are shown in the table below: Competitive Response Company action Maintain Price p=0.8 Reduce Price $165,000 Maintain Price $185,000 Reduce Price (1-p)=0.2 $135,000 $95,000 Hint: The Marketing By the Numbers assignment at the end of Chapter 4 explains how to calculate EMV. What is the expected value of perfect information (EMVp)? Should the research be conducted? Assume that conducting more research costs $16,000. The expected monetary value (EMV) of reducing the price is $ 159,000. (Round to the nearest dollar.) The expected monetary value (EMV) of maintaining the price is $. (Round to the nearest dollar.)
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