The main focus of the Project is on the economic foundations of competition. The project presents a series of simplified competitive settings where you have to make decisions such as choose capacity or price. The goal is to find the best choice through trial and error, and then to reflect on the exercise and explain the outcome (by answering the following questions [individually]).

Please let me know during the term if you have any questions about this project (e.g., about the meaning of any specific questions below).

Competitive Product Positioning

Scenario 1: Positioning with Fixed Price

What is the optimal position, and why is that the optimal position?

If you were the first-mover in this market (with fixed prices), where would you position your motor?

How would your optimal response (to MM choosing 90) and your optimal first-mover position differ if no consumer accepted a distance of more than 30?

Scenario 2: Positioning and Price

How does this (optimal solution) compare to the outcome with fixed (and equal) prices? What explains the difference?

If you were the first-mover in this market (with prices determined after positions are chosen) where would you position yourself?

Competitive Capacity Choices

Second-Mover

As CMC is more aggressive by building more capacity, do you become more or less aggressive (i.e., do you build more or less capacity)?

Why is that the case? [**Please consider this question ONLY after completing the full simulator exercise**]

First-Mover

Do you prefer to be first-mover when choosing capacity or second-mover? Why?

What is the effect of capacity pre-emption?

What would be the effect of adding capacity in secret?

Price Competition

Second-Mover

As MC becomes more aggressive by setting a lower price, do you become more or less aggressive (i.e., do you lower or raise your price)? How does that compare to your answer for capacities (in the previous setting [2])?

What explains the similarities or differences? [**Please consider this question ONLY after completing the full simulator exercise**]

First-Mover

Do you prefer to be first-mover or second-mover when choosing price? Why?

Does it matter whether MC observes your price? Why?

Why would a firm want to commit to a price? Why do we see price-leaders?

When would you want to be very transparent in the price you set? When do you want to make it difficult to predict your price?

What explains the difference with being a first-mover in capacity (or the difference with capacity commitments)?

Number of Competitors

As you face more competitors do you become more or less aggressive (i.e., do you lower or raise your price)? Why?

Which market are most competitive those with few or with many competitors?

Capacity and Prices

Is there any advantage to limiting your capacity? If so, why? If not, why not?

How would this change if DD could not observe your capacity choice? What if you could secretly change your capacity choice, without DD noticing?

Suppose you could contract with DD on both capacity levels, would a different outcome obtain?

Suppose you are the first-mover incapacity. Before your competitor has chosen capacity, do you want to convince your competitor that you have a large or a small capacity? After your competitor has chosen capacity, do you want to convince your competitor that you have a large or a small capacity?

Market Size and Profitability

What happens when the market size increases? What happens to prices? What happens to BBs profits? Is it always good for BB if its market increases in size?

Technology Choice and Entry

What happens when the incumbents cost structure changes? What is driving this outcome?

If you were the incumbent and there was no threat of entry, which cost structure would you choose? If you were the incumbent and there IS a threat of entry, which cost structure would you choose? How can you accomplish that in practice?

Technology Choice

Does the pattern make sense? Any examples that fit with this pattern? How do you think economies of scale change with market size?

Capacity in Perfectly Competitive Markets

How does bringing the plant online affect your profits? Why? What are your incentives to invest in more plants? What do you think would happen if you took another plant offline? What will happen in the long run?

What makes this outcome more or less likely (e.g., in terms of the shape of the demand curve or in terms of your size relative to the market)?

How are profits of crude producers affected? How are consumers affected? Is this a zero-sum game that simply transfers profits between parties?

Summary

Try to summarize the main lesson(s)/ message of playing EACH one of nine game sets in a sentence of two for each.

For TWO of these games/ lessons/ messages, try to briefly describe ONE recent real-life example.

Please briefly describe one thing you liked MOST and one thing you liked LEAST about this project.