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Essay / Research Paper Abstract
This 3 page paper answers 6 questions regarding the entrance of a new competitor into a former monopoly industry. The paper includes a strategic form payoff matrix and examines the situation, why a new competitor entered, why the existing competitor dropped its prices and why the buyers were the winners. The bibliography cites 1 source.
Page Count:
3 pages (~225 words per page)
File: TS14_TEecqu02.rtf
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Unformatted sample text from the term paper:
a lower price Holland will not get the contract, this means in three out of the four scenarios they will make a loss. The only time Monsanto loose is if
they quote a high price when the buyers will go to Holland. Here we can see the strategy of Holland will be to price low. If they price low and
Monsanto price high they will bring in 100 million less the 25 million investment. Monsanto may loose if they price high then they are also likely to price low as
they are likely to believe that Holland will price low to gain entry to the market. This means this is the Nash equilibrium, both end up pricing low.
Question 2 If we assume that the interaction is sequential and the problem is faced in the second stage it may be argued that they should not have entered. By
looking ahead they know there is a pricing problem and that in all but three scenarios they will loose their investment. This leaves only one scenario where they can make
a profit. However, an examination of the situation should indicate to them, that using game theory, if they price low, so will Monsanto, and they may reduce the profit of
Monsanto but if this occurs they will not make a profit. Therefore they should not have entered. Question 3 Holland entered the market as it was attractive, there was
a monopoly on the market and most buyers do not like one supplier to have such a hold over them. They had hoped to gain entry to this market and
the large level of sales, possibly entering quietly and not realising the reactions of Monsanto until they had set up operations. They may also have believed that there may have
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