Questions for Lesser Antilles (A), (B), and (C)

Read all three parts of the case and prepare your answers to the following questions.

Lesser Antilles (A)

1. Appraise LAL's past pricing strategy. Can this strategy achieve its objective?
2. What are the assumptions behind the table in Exhibit 4? How realistic are those assumptions?

1. Using Exhibit 4, solve a simultaneous choice game in which both firms choose prices. What are the Nash equilibria?

1. Now, consider that one of the firms moves first. What are the Nash equilibria? Is there a leader or follower advantage?

1. Suppose that the interest rate is 10%. Does there exist a Pareto superior equilibrium in which the firms collude over an infinitely-repeated horizon? If so, try to characterize it (at least in words).

Lesser Antilles (B)

1. Describe how the following contractual terms affect pricing in this industry:
2. Price matching
3. Last-look provision
4. Most favored nation clauses

Lesser Antilles (C)

1. What do you think of using the multinomial logit model in this market?
2. What other considerations are there is one considers an entry game like this? We will revisit this question again after considering entry strategy and deterrence. Just want to gauge your initial instincts