Mid Term Essay

1277 Words Feb 8th, 2015 6 Pages
Week 5 - Midterm Exam

1. You are considering purchasing a personal computer. What factors would affect your price sensitivity in making the decision? How would those same factors affect the price sensitivity of some personal computer buyers differently?
Some of the things I would consider are: Customer Support, Warranty, Processing Speed, Storage, Memory, Battery life, and Networking capability. Depending on the value I place on each of these factors will determine the price I am willing to pay. Because there are alternative choices to be considered (trade-offs), the best value for me would be getting a computer that provides the best fit with my goals and desires for it.
These same factors will affect the price sensitivity of other
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Explain why most renters patronize the national car rental companies despite their higher prices. How have the national companies encouraged this price insensitivity?
Customers are less sensitive to the extent that a higher price signals higher quality. Local or generic rental agencies will capture a large part of price sensitive consumers; however, more consumers are risk-averse and tend to patronize the companies that suit with complete safety and loyalty and perceived value instead of taking a chance with a new local company. National companies maximize net revenue by offering a lower price to price-sensitive customers and a higher price to price-insensitive customers. In this case they have the flexibility and price sensitivity to cater to more segments of the market.

4. A company can gain a substantial market share advantage with lower prices in a price sensitive market. Why then would any company in such a market choose to price cooperatively?

As consumer loyalty in the market increases, the gains from increasing market share by means of aggressive competitive behavior are more than offset by losses in profit margins. Companies therefore have the motivation to price cooperatively as opposed to when a market is highly concentrated and companies find it easier to achieve cooperation because coordination is needed only among a fewer number of companies.
5. The gasoline service

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