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Competition Simulator Exercise: Questions for Worksheet 3-9

Below is the third set of choices that you need to make. The required data can be found in Excel worksheet 3: CSE Price Competition

a. Second Mover

i. 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)?

b. First Mover

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

ii. Does it matter whether MC observes your price? Why?

iii. 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?

iv. How can you make price difficult to predict?

v. Have you seen examples of firms hiding prices?

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

Below is the fourth set of choices that you need to make. You will find all the required data in Excel worksheet 4:

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

b. Which markets are the most competitive: those with few or with many competitors?

Below is the fifth set of choices that you need to make. You will find all the required data in Excel worksheet 5:

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

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

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

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

Below is the sixth set of choices that you need to make. You will find all the required data in Excel worksheet 6:

What happens when the market size increases? What happens to prices? What happens to BB's profits?

a. Is it always good for BB if its market increases in size?

b. Is market growth always beneficial? What can an incumbent do when facing market growth?

c. Have you seen examples of small market size resulting in natural monopoly?

Below is the seventh set of choices that you need to make. You will find all the required data in Excel worksheet 7:

a. What happens when the incumbent's cost structure changes? What is driving this outcome?

b. If you were the incumbent and there was no threat of entry, which cost structure would you choose?

c. 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?

Below is the eighth set of choices that you need to make. You will find all the required data in Excel worksheet 8:

a. Does the pattern (switching to the technology with high fixed cost but low per-unit variable cost) make sense?

b. Any examples that fit with this pattern?

c. How do you think economies of scale change with market size?

Finally, we've reached the last topic of our CSE! Below is set of questions. You will find all the required data in Excel worksheet 9:

a. 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?

b. 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)?

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

Attachment:- Assignment Files.rar