Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN: 9781305506381
Author: James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher: Cengage Learning
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Chapter 15A, Problem 1.3CE
To determine
To Explain: The auction design that would be in the best interest of the seller as to whether it should be single-round bid or multiple round open bidding.
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Explain how the strategic choice of reservation price can raise expected profitability yet threaten efficiency in an English auction.
If the price match policy is a good idea, how widely should it be advertised? Explain. You woke up this morning to a troubling advertisement on TV: A+ Rental Cars' local competitor is discounting their economy rentals. After doing a little digging, you discover that your competitor has launched an aggressive advertising campaign, reducing the price on their economy line from $32.99 to $24.99. Based on your knowledge of previous pricing practices, you expect a similar price reduction across all vehicle types.
a) What is a tie-in contract and how does that differ from bundle pricing?
b) What is a conglomerate merger and why are they more likely to be approved?
c) Limit pricing is a strategy where a firm sets a low, but profitable, price to discourage entry. How does that differ from predatory pricing?
Chapter 15A Solutions
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
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- Queen Elizabeth has decided to auction off the crown jewels, and there are two bidders: Sultan Hassanal Bolkiah of Brunei and Sheikh Zayed Bin Sultan Al Nahyan of Abu Dhabi. The auction format is as follows: The Sultan and the Sheikh simultaneously submit a written bid. Exhibiting her well-known quirkiness, the Queen specifies that the Sultan’s bid must be an odd number (in hundreds of millions of English pounds) between 1 and 9 (that is, it must be 1, 3, 5, 7, or 9) and that the Sultan’s bid must be an even number between 2 and 10. The bidder who submits the highest bid wins the jewels and pays a price equal to his bid. The winning bidder’s payoff equals his valuation of the item less the price he pays, whereas the losing bidder’s payoff is 0. Assume that the Sultan has a valuation of 8 (hundred million pounds) and that the Sheikh has a valuation of 7.a. In matrix form, write down the strategic form of this game.b. Derive all Nash equilibria.arrow_forwardHome Depot and Lowe's are in a price war on refrigerators. Refrigerators at Home Depot cost $1,000 with a price matching guarantee of a 10% rebate on the price difference with Lowe's, whose refrigerators cost $800. Is this price matching guarantee with a 10% rebate beneficial to the consumer? No, eventually both stores will offer the price matching with rebate and post the price of refrigerators at $1,000, the High Price. Yes, consumers will be able to buy their refrigerators at Home Depot for $780. No, both Lowe's and Home Depot will stop selling refrigerators. O Yes, consumers will be able to buy refrigerators at either store at the Low Price of $800, the lower posted price.arrow_forwardAnalyze the pure Nash equilibrium and mixed Nash equilibrium strategies in the following manufacturer–distributor coordination game. How would you recommend restructuring the game to secure higher expected profit for the manufacturer?arrow_forward
- Considering the actors (i.e., two shipping lines and the port authorities) and the predetermined cost functions described below (i.e., transportation costs and port fees), and determine the equilibrium outcome (price, quantity, and profit) of the game. Let qi for i = 1 and 2 denote the number of containers transported by shipping line i. Assume a standard inverse demand function for a container of the form P = 20 000 − (q1 + q2) , and a total transportation cost function, excluding fixed costs, of the form TC = 200qi + (dt/2)*qi2 for i = 1,2, and t=low, high, representing low and high diseconomies of scale, i.e. dlow < dhigh. When both shipping lines choose the port of Gothenburg, which is characterized by low diseconomies of scale, each vessel incurs a lump sum of €1200 in port fees. In the case when both vessels choose the port of Helsingborg, which is characterized by high diseconomies of scale, each vessel incurs €1000 in port fees. Lastly, when the shipping lines choose…arrow_forwardSuppose that Alpha Inc., Richardson Industries, and K-Tek are the only three firms interested in a plot of land on the outskirts of town. The lot is being auctioned by a second-price sealed-bid auction. Alpha values the lot at $17,000, Richardson at $20,000, and K-Tek at $10,000. Each bidding firm's consumer surplus is CS=v₁ - P if it wins the auction and 0 if it loses. The values are private. What is each bidder's optimal bid? Who wins the auction, and what price does that firm pay? Richardson's optimal bid is $ and K-Tek's is $ Alpha's optimal bid is $ whole numbers.) (Enter your responses asarrow_forwardThree firms are bidding for the rights to provide cable television services. The demand for cable television is given by the equation P=100-Q. Firm 1 has an average cost of AC1 = 10, Firm 2 has an average cost of AC2 = 20, and Firm 3 has an average cost of AC3 = 30. If the rights are awarded using an English auction, approximately what is the resulting price and quantity of services provided? (A). P= 10; Q = 90. (B). P = 20; Q = 80. (C). P = 30; Q = 70. (D). P = 20; Q = 90. (E). P = 10; Q = 80.arrow_forward
- You have three tickets to a Celtics game on a night that you are going to be out of town (so the value of unsold tickets is zero to you). There are only four possible buyers of a Celtics ticket. The table below lists the respective reservation prices of these four possible buyers: Customer Reservation Price 1 $25 2 $35 3 $50 4 $60 You consider inviting bids using an English auction to sell your tickets. How much total revenue can you generate using the English auction mechanism from the sale of the three tickets? [Bids can be made in increments of $1.00]arrow_forwardMatch the definition to each term listed below. Definition Number A table that shows the payoffs each firm earns from every combination of firm strategies An agreement among firms to charge the same price or otherwise not to compete An option that is better than any alternative option regardless of what the other firm does An outcome of a strategic game from which neither rival wants to deviate A game outcome in which players seek to increase their mutual payoff A practice where one firm initiates a price change and the other firms follow the leader A game in which the firma choose their strategies at the same time One firm's gain must equal the other firm's los A game in which the sum of the two firms outcomes is positive Firms select their optimal strategies in a single time period without regard to possible interactions in subsequent time periods A game that occurs more than once 4. 6. 7. 10 11 Instructions: Enter a numeric response corresponding to the number of the definition…arrow_forwardQ2.1 In the second round with two buyers remaining, the probability that a buyer with valuation v wins is vN-1, where N is the number of buyers in the first round. Use the revenue equivalence theorem to derive the symmetric equilibrium bidding function b(v) for the buyers in stage two. Show your work. Q2.2 At the end of the auction what is the value of the actual (not expected) revenue that the seller receives? Round your answer to at least three decimal spaces.arrow_forward
- Suppose that Alpha Inc, Richardson Industries, and K-Tek are the only three firms interested in a plot of land on the outskirts of town. The lot is being auctioned by a second-price sealed-bid auction. Alpha values the lot at $16,500, Richardson at $18,000, and K-Tek at $12,500. Each bidding firm's consumer surplus is CS=-P if it wins the auction and 0 if it loses. The values are private. What is each bidder's optimal bid? Who wins the auction, and what price does that firm pay? Alpha's optimal bid is $. Richardson's optimal bid is 5, and K-Tek's is (Enter your responses as whole numbers)arrow_forwardWhen Home depot charges $93 for a children's game, they sell 100 units. When they charge $85, they sell 120 units. If they were to give away the game for free, how many units (Q) would be demanded?arrow_forwardEvaluate the following statement: “Predatory pricing in a market is a Nashequilibrium strategy whether or not the incumbent has an advantage; hence, it canwork in practice”. Include diagrams to aid you in your analysis when appropriate.arrow_forward
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