Firms in the computer industry set their pricing based on what their competitors are doing. Go to Price Strategy Simulator at http://broadcast.forio.com/sims/pricing to try the pricing game "HP/Compaq vs. Dell." Assume HP/Compaq and Dell are the only firms in the industry. Answer the following questions:

What pricing strategy did you use? Looking at the financials, below what price would you shut down? (Refer back to Chapters 7 and 8.Remember, you can operate for a while if average revenue, or price, exceeds average variable costs, even if you are losing money.)

What was each firm's cumulative loss/gain and market share after six months?

What pricing strategy did your competitor appear to use?Can you determine what kind of "game" might be going on (look at the material on Game Theory in Chapter 10).

Select "Your Own Scenario" to find the assumptions in the model. Assuming the cost structure remained the same, which firm is likely to gain more market share in the long run? Why?

Generalize a bit.What are keys to financial success in this kind of industry and market structure?

Note:You're probably not going to "win".You can, however, make a decent profit.

MONOPOLISTIC COMPETITION

Go to www.starbucks.com and list at least two ways Starbucks is trying to increase brand loyalty to its product. Explain how these activities helps Starbucks maintain its market share.

Then google Coffee Shops Denver.Approximately how many are listed that are not Starbucks or another chain?

If you have time, visit one or more that might be near you.How does it (do they) differentiate from one another and from Starbucks?Why is this good for their business?Why is it good for consumers?

In what ways is the coffee shop industry in the area inefficient?Do you think inefficiency is reflected in prices?If not, why not?If so, why do consumers accept the higher prices?