Crest toothpaste, for example, is different from Colgate, Aim, and a dozen other toothpastes in terms of partly flavor, partly consistency, and partly reputation-the consumer's image (correct or incorrect) of the relative decay-preventing efficacy of Crest. As a result, some consumers (but not all) will pay more for Crest.
Procter & Gamble, the sole producer of Crest, has monopoly power. But its monopoly power is limited because consumers can easily substitute other brands for Crest if its price rises.
Consumers who prefer Crest will pay more for it, but many may not. The typical Crest user might pay 25 or even 50 cents a tube more, but probably not a dollar more.
For most consumers, toothpaste is toothpaste, and the differences among brands are small.
Therefore, the demand curve for Crest toothpaste, though downward sloping, is fairly elastic.
Because of its limited monopoly power, Procter & Gamble will charge a price higher, but not much higher, than marginal cost.
The situation is similar for Tide detergent or Scott paper towels.
In early 2001, Lucent, a high-technology firm, announced that its sales had fallen 28 percent, while rival Nortel Networks experienced a 34 percent increase. Lucent’s failure to adopt a new generation of optical-technology production quickly forced it to lay off 16,000 of its employees.
In retailing, J. C. Penney announced it would shut forty-seven stores eleven months after it had closed forty-five others and Kmart filed for bankruptcy. Meanwhile, Wal-Mart & Costco were rapidly expanding across the United States.
A situation in which one firm establishes itself as the industry leader and all other firms in the industry accept its pricing policy.
This leadership may result from the size and strength of the leading firm, from cost efficiency, or as a result of the ability of the leader to establish prices that produce satisfactory profits throughout the industry.
A situation in which one firm in an industry announces a price change in response to what it perceives as a change in industry supply and demand conditions and other firms respond by following the price change
A theory assuming that rival firms follow any decrease in price in order to maintain their respective market shares but refrain from following increases, allowing their market share to increase at the expense of the firm making the initial price increase
The prisoners' dilemma Not confess Confess Not confess Confess Amanda's alternatives Nigel's alternatives A B C D Each gets 1 year Each gets 3 years Nigel gets 3 months Amanda gets 10 years Nigel gets 10 years Amanda gets 3 months
Profits for firms A and B at different prices X’s price Y’s price £10m each £8m each £12m for Y £5m for X £5m for Y £12m for X £2.00 £1.80 £2.00 £1.80 A B C D
Boeing decides A decision tree A 500 seater 500 seater 500 seater 400 seater 400 seater 400 seater Boeing –£10m Airbus –£10m (1) Boeing +£30m Airbus +£50m (2) Boeing +£50m Airbus +£30m (3) Boeing –£10m Airbus –£10m (4) Airbus decides B 2 Airbus decides B 1