Week7 | Operations Management homework help
- Strategic Barriers to Entry: Suppose a large gas station chain wants to enter your market. What strategies could you and your competitor employ to deter them (acting as a united front)?
· Explain the concepts of limit pricing and capacity expansion as strategic barriers to entry. Are these tactics easy or difficult to implement effectively?
Explanation:
This question explores game theory concepts and how they apply to strategic decision-making in an oligopolistic market: · Game Theory Basics: This situation can be modeled as a game where each gas station owner chooses a price (their strategy) to maximize their profit (payoff). Dominant strategies are always the best choice, regardless of the competitor's action. Dominated strategies are never the best choice, no matter what the competitor does. A Nash equilibrium is a combination of strategies where neither station has an incentive to change their price given the other's price. · Repeated Interactions: Repeated interactions can lead to cooperation because there's a future cost to reneging on an agreement. Both stations might benefit from stable prices in the long run, even if it means slightly lower profits compared to a constant price war.
· Facilitating Cooperation:
· Monitoring actions and potential cheating is important. · Punishment for breaking the agreement can deter future defection. · Rewards for sticking to the cooperative pricing can incentivize continued cooperation. · Building trust through communication and a history of cooperation is crucial. · Strategic Barriers to Entry: Limit pricing involves setting a low price to discourage the new chain from entering. Capacity expansion involves building additional gas pumps to signal there's no room for another competitor. These tactics can be difficult to implement effectively, as they require coordination between existing firms and may not always be profitable in the long run.
Discussion Question Requirements
Initial responses are due by Tuesday, and two peer responses are due by Friday. The initial response should be a minimum of 200 words, with at least two peer-reviewed references. In-text citations are required. Peer responses should be a minimum of 150 words, with at least one peer-reviewed reference.
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