Managerial Economics & Business Strategy (Mcgraw-hill Series Economics)
9th Edition
ISBN: 9781259290619
Author: Michael Baye, Jeff Prince
Publisher: McGraw-Hill Education
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Chapter 13, Problem 13PAA
To determine
To explain: Whether it is profitable for WC to engage in limit pricing.
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In 1896, Colgate dental cream was introduced in tubes similar to those we use now. Today, the Colgate-Palmolive Company’s brand of toothpaste is the best-selling toothpaste in the world (ahead of the Crest brand marketed by Procter & Gamble, which was introduced in 1955).
While Colgate and Crest enjoy the lion’s share of the toothpaste market, if you view the oral care shelf at your local drugstore or supermarket, you will find over a hundred different varieties of toothpaste. Colgate alone sells over 40 different varieties that are marketed under names ranging from Shrek Bubble Fruit to Colgate Total Advanced Whitening.
The high level of product differentiation in the toothpaste market stems from firms introducing new varieties in an attempt to boost their economic profits. In environments where makers of other brands (such as Crest) can easily enter profitable segments of the market, a profitable strategy is to attempt to quickly cover that segment (introducing Shrek Bubble Fruit…
In 1896, Colgate dental cream was introduced in tubes similar to those we use now. Today, the Colgate-Palmolive Company’s brand of toothpaste is the best-selling toothpaste in the world (ahead of the Crest brand marketed by Procter & Gamble, which was introduced in 1955). While Colgate and Crest enjoy the lion’s share of the toothpaste market, if you view the oral care shelf at your local drugstore or supermarket, you will find over a hundred different varieties of toothpaste. Colgate alone sells over 40 different varieties that are marketed under names ranging from Shrek Bubble Fruit to Colgate Total Advanced Whitening.
The high level of product differentiation in the toothpaste market stems from firms introducing new varieties in an attempt to boost their economic profits. In environments where makers of other brands (such as Crest) can easily enter profitable segments of the market, a profitable strategy is to attempt to quickly cover that segment (introducing Shrek Bubble…
You have just taken over the job of senior product manager for a line of Consumer Home Routers at Cisco. On your first day at work, your new boss walks into your office and informs you that your product line will be discontinued and replaced by a revolutionary new product line on October 1 of the same year. She also tells you that she wants you to raise prices on your existing product line by 20% in order to protect profitability during the transition. After a moment of reflection, you tell her that you need a day to gather some information and will respond to her at that time. You go to a number of sources including field sales VPs, market research, other product managers, and an external consulting firm, and ask them how responsive customers have been to changes in prices in the past. They tell you that a 10% increase in price always leads to a 5% decrease in sales volume. The next day you walk into your boss’s office.
What is your recommendation and what is your reasoning?
Chapter 13 Solutions
Managerial Economics & Business Strategy (Mcgraw-hill Series Economics)
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