Q1. The Market Power of Nike (E1, E2) [20 marks]

Nike is a profitable company, known for brand strength and product innovation. Indeed, 'Fast Company' tags Nike in the top 10 most innovative retail companies of 2021. Read the following articles (listed in reverse chronological order) and then answer the questions below:

1.Ciment, Shoshy (2021) "Nike is transforming from a marketing company into a technology brand", Business Insider, March 30, available online: https://www.businessinsider.com/inside-nike-restructure-layoffs-dtc-resale-digitalization-2021-3?IR=T

2.Howland, Daphne (2021) "Despite port congestion and revenue declines at home, Nike posts a profit", Retail Dive, March 19, available online: https://www.retaildive.com/news/despite-port-congestion-and-revenue-declines-at-home-nike-posts-a-profit/597029/

3.Bain, Marc (2021) "Nike and Adidas are locked in a digital arms race", Quartz, March 11, available online: https://qz.com/1982171/nike-and-adidas-are-in-a-digital-arms-race/

4.Kohan, Shelley E. (2020) "Pandemic-Proof Nike Delivers Another Strong Quarter With 9% Sales Increase", Forbes, December 19, available online: https://www.forbes.com/sites/shelleykohan/2020/12/19/pandemic-proof-nike-delivers-another-strong-quarter-with-9-sales-increase/?sh=6d2c0a1a1469

5.Bain, Marc (2020) "It's getting harder to find Nikesand that's just how Nike wants it", Quartz, November 3, available online: https://qz.com/1925836/under-armour-follows-nike-by-cutting-retail-partners/

6.Chitrakorn, Kati (2020) "Inside Nike's latest bet to understand its customers", Vogue Business, July 29, available online: https://www.voguebusiness.com/consumers/nike-retail-strategy-direct-to-consumer-house-of-innovation

a.Do some additional research and elaborate on Nike's past (2016 to 2019) investment strategies of direct-to-consumer (DTC) sales and other e-commerce initiatives that placed the firm in a relative strong (profitable) position in 2020. In your answer, elaborate on a process of creative destruction at play in this case.

B.Explain the effect of such strategies to enhance the loyalty of Nike footwear to its devoted consumers and therefore Nike's profitability. In your answer, illustrate with a discussion of the price elasticity of demand for Nike footwear.

C.Illustrate using an appropriate diagram where the firm sets price to maximise profit (such as adapting Figure 7.9d from CORE ESPP) to explain in some detail the profitability of Nike in 2020. In your answer, use hypothetical values based on actual data where possible. HINT: A good answer discusses all the relevant aspects and concepts related to the diagram, and incorporates answers given in (b).

Q2. The Market for Lumber and Housing in the US (E3) [10 marks]

There has been a strong increase in global demand for building materials (especially timber) from mid-2020 to 2021, which has led to delays on various construction sites such as in Australia, France, the US. Read the following articles (and links within) and then answer the question below:

1.Sheffey, Ayelet and Libertina Brandt (2021) "Lumber prices are so high that many builders are holding back on construction" Business Insider, March 26, available online: https://www.businessinsider.com.au/why-is-lumber-so-expensive-homebuilding-real-estate-newbuild-inventory-2021-3

2.Lambert, Lance (2021) "Lumber prices are up a staggering 188%when will the wood shortage end?", Fortune, March 20, available online: https://fortune.com/2021/03/20/lumber-prices-2021-chart-when-will-wood-shortage-end-price-of-lumber-go-down-home-sales-cost-update-march/

3.Subramanian, Samanth (2021) "The US wood shortage can be traced to a decades-old beetle infestation in Canada", Quartz, March 18, available online: https://qz.com/1985276/america-is-running-short-of-wood/

Use the demand and supply (D&S) model to demonstrate the change in the market conditions from 2019 to 2021 for the lumber market and the housing market in the US. Use two separate D&S diagrams, and carefully label the curves and clearly indicate all equilibrium prices (and quantities).