Question
In 1997, the portable electric generator industry was mildly profitable and over a decade, consumption of portable electric generators grew at an annualized rate of
In 1997, the portable electric generator industry was mildly profitable and over a decade, consumption of portable electric generators grew at an annualized rate of 2%. However, in the year 2000, there was a public fear that power grids would collapse because the computer programs that controlled it would not be able to adapt to the change from 1999 to 2000. Anticipating a big increase in demand for portable generators, many firms including Akers, MacMillan, and Parlow (AMP) implemented a Y2K strategy that involved investing heavily in this industry and doubling production capacity. In 1999, demand for portable generators indeed boomed as expected as shipment increased by 87% and price rose by 21%. However, the following year was a burst as demand fell back to its 1998 level, prices plummeted and even fell below its 1998 level. Industry profit declined dramatically along with capacity utilization. Many firms in this industry couldn't survive and in 2000, AMP declared bankruptcy. As a Manager of AMP, what framework/model can you use to examine this phenomenon and how can you explain the demise of AMP? As a manager, what would you have done differently?
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