In this blog you will find the correct answer of the Coursera quiz Competitive Strategy Coursera week 6 Quiz mixsaver always try to bring the best blogs and best coupon codes
1. What are typical assumptions in the Bertrand Paradox?
- All consumers know about all prices in the market.
- The products are identical.
- The firms in the market decide about quantities simultaneously.
- The consumers are loyal to one firm regardless of the price and quantity.
- The firms in the market interact repeatedly.
2. According to the Bertrand Paradox, firms with identical products end up in fierce competition and make zero profits. Which of the following aspects would change this outcome?
- Different companies develop slightly different designs for their products.
- Additional firms enter the market.
- Some consumers do not know all prices.
- The companies have not enough production capacity to serve the whole market.
3. Imagine you are the CEO of BubbleJoe, a company specialized on chewing gum with mint flavour. Your only competitor, BubbleYum, also focuses on chewing gum with mint flavour. How could you manage to avoid the Bertrand Trap and make positive profits?
- Introduce a loyalty program (“after buying 9 packages you get the 10th package for free”) and thus increase the switching costs.
- Change to the production of strawberry flavoured bubble gum.
- Open an additional production facility to signal your willingness to fight for the market.
PRACTICE QUIZ Product Differentiation
1. Imagine there are three different companies manufacturing smartphones. The smartphones have different colours and different memory capacities.
Which of the following statements are true in this context?
- The colour is a form of horizontal product differentiation.
- The colour is a form of vertical product differentiation.
- In this situation, the companies make zero profits.
- The memory capacity is a form of vertical product differentiation.
- The memory capacity is a form of horizontal product differentiation.
2. Next to the University of Paris, 1000 students live along a boulevard. Every morning two competing bakers come with their push carts to sell fresh baguette (same quality and taste).
The students love to eat fresh baguette for breakfast, but they are lazy to walk.
What is true about this specific example of the Hotelling Model?
- Choosing the optimal location is some kind of a Prisoner’s Dilemma.
- The pain from walking long distances to a baker can also be interpreted as the loss related to deviating from the ideal good.
- If the students enjoyed walking along the boulevard in the morning, the bakers would still make positive profits.
- The different locations of the push carts can be interpreted as vertical product differentiation.
- The bakers will locate their push carts at different ends of the boulevard. This way, they can avoid fierce price competition and charge higher prices.
- The different locations of the students along the boulevard can also be interpreted as the strength of their preference for one of the baker’s baguettes.
PRACTICE QUIZ Pricing and Product Decisions
1. Porter suggests the following generic strategies for creating a defendable position and outperforming competitors in the industry:
- Cost leadership
- Market transparency
- Value chain reconfiguration
- Judo economics
2. According to this graph, which strategy does C represent?
- Cost leadership
- Stuck in the middle
- Niche market
- Predatory pricing
Value chain reconfiguration
3. What is true about Porter’s generic strategies?
- Each strategy requires different organizational arrangements, control procedures, incentive systems and resources.
- The differentiation strategy usually requires a high market share.
- Firms with a differentiation strategy make higher profits than firms with a cost leadership strategy.
- Offering differentiated products at low prices guarantees high profits.
Designing Products Wisely
1. Coca Cola and Pepsi both sell bottled cola soft drinks. Their cola soft drinks have the same quality and price but taste differently. In the Hotelling Bertrand model, the difference in taste of Coca Cola and Pepsi is represented by…
- …the position of a consumer along the beach.
- …the different locations of the sellers along the beach.
- …the discomfort from walking of a consumer.
2. Imagine two firms are active in the same market. What can these firms do to avoid the Bertrand trap?
- They can make their prices more visible so that every consumer knows about the prices of all firms.
- They can make their products look more similar.
- They can raise structural entry barriers so that no more firms can enter the market.
- They can limit their production capacity so that they cannot serve the whole market.
- They can introduce loyalty programmes.
3. Imagine there are two companies offering the same kind of product: One firm is offering a low quality version and the other firm is offering a high quality version.
Given this market structure, the firm offering low quality…
- …will never realize positive profits.
- …can realize positive profits.
- …most likely realizes higher profits than the firm offering high quality.
4. Two products A and B are horizontally differentiated if…
- …given equal prices, some consumers would choose product A whereas others would choose product B.
- …given equal prices, every consumer would choose product A over product B (or product B over product A).
5. Which of the following assumptions lead to the unrealistic prediction of the Betrand Paradox:
- The firms do not have any capacity constraints.
- It is costly for the consumers to switch from one seller to the other seller.
- The consumers are infinitely price elastic.
- The firms’ products are identical.
- The consumers have different tastes.
6. Imagine you are the owner of an ice cream stall at Marienplatz, the city centre of Munich. You are known for selling low quality vanilla ice cream to affordable prices. Next door opens a Häagen Dazs store that sells premium vanilla ice cream for high prices.
Which of the following statements are true?
- You will not end up in perfect competition because the ice creams are horizontally differentiated.
- You will end up in perfect competition because the ice creams are horizontally differentiated.
- Competition decreases (ceteris paribus) with a high degree of heterogeneity between people who are willing to pay high prices for premium ice cream and people who prefer low quality ice cream to affordable prices.
- Competition decreases (ceteris paribus) when there are many people who are willing to pay high prices for premium ice cream.
- The better and more expensive the Hägen Dazs ice cream, (ceteris paribus) the more intense the competition.
- The simpler and cheaper the Hägen Dazs ice cream, (ceteris paribus) the lower the competition.
7. Imagine you are thinking about buying a new smartphone. At the retailing store, the sales person shows you the latest models from Apple, Samsung and HTC. Some smartphones use the new LTE transmission technology that allows you to surf the web much faster. Others are using the conventional 3G technology with lower transmission rates.
Which of the following statements are true?
- The different brands represent horizontal product differentiation.
- The different transmission technologies represent horizontal product differentiation.
- The smartphones are neither horizontally nor vertically differentiated.
8. Which of the following statements are true?
- A central element of the cost leadership strategy is minimizing costs in areas such as R&D, services, sales force and advertising.
- The cost leadership and the differentiation strategies need different organizational arrangements, control procedures, incentive systems and resources.
- The main idea of the differentiation strategy is to focus on a particular buyer group, product line or geographic market.
- For a cost leadership strategy it is important to charge aggressive prices to achieve a high market share.
- Implementing a hybrid strategy always leads to better results than following a cost leadership or differentiation strategy.
9. Burger King and McDonald’s sell burgers of the same price and quality but of different taste. Some consumers prefer burgers from Burger King, others like McDonald’s more than Burger King. According to the Hotelling Bertrand model, which of the following events have (ceteris paribus) a positive influence on the profits of the two fast food restaurants?
- McDonald’s changes the recipe of its burgers so that they now taste similar to the burgers from Burger King.
- Suddenly, much more people dine at fast food restaurants.
- The Burger King fans become more extreme and are no longer willing to eat any McDonald’s burger at all.
10. According to the Bertrand Paradox, two firms in the same market reach a Nash Equilibrium where both firms charge a price …
- …equal to their costs.
- …equal to the monopoly price.
- …that is adjusted to the current demand.
- …that is set by the government.
1. Imagine British Telecom is the monopolist for landline phone calls in the UK. Every day, 50,000 minutes of phone calls are sold throughout the UK. British Telecom charges GBP 6 per minute.
Now a small company called London Calls enters the market. London Calls charges GBP 4 per minute and limits its network to the Greater London area where 50% of the UK’s overall minutes of phone calls are sold. London Calls can convince British Telecom that it will not extend its network further.
Assume that the quality of the phone calls is the same for British Telecom and London Calls. All consumers will switch to the supplier with the lower prices. There are no switching costs. The companies cannot charge different prices for different regions.
Will British Telecom attack London Calls?
2. Imagine now that the Olympic Games last for three weeks.
Coca Cola and Pepsi have to decide once at the beginning of each week at the same time how many cans they want to sell in the following week. The storage space on site is limited, so that they have to sell all the produced cans in the respective week.
Can this change the outcome of the game described in Question 8?
3. Imagine Sony and Philips are working on a new optical disc storage medium designed to supersede the DVD and the Blu-Ray Disc. Each company develops its own technical standard. The company’s payoffs from the new product depend on which technical standard succeeds in the end. They are illustrated in the following payoff matrix.
Sony has now the chance to speed up the construction of its production plant so that it will be ready earlier than Philips’ construction plant.
What will be the outcome of the game?
- Sony receives payoffs of € 2mn / Philips receives payoffs of € 4mn
- Sony receives payoffs of € 4mn / Philips receives payoffs of € 2mn
- Sony receives payoffs of € 1mn / Philips receives payoffs of € 1mn
4. Which of the following statements are true?
- A monopolist in a market will consider deterring entry if this strategy changes the entrant’s expectations about the nature of post-entry competition.
- Cooperation between competitors in a market is more likely to be stable if ceteris paribus there are many competitors.
- In repeated interactions between companies, cooperation is more likely if ceteris paribus future payments are more important.
- Games with infinite repetitions can be solved via backwards induction.
- Strategic entry barriers arise from the nature of the industry and / or from the position of the incumbent within the industry.
- Firms which are direct competitors can also be complementors.
- Judo Economics can only be successful if the entrants signal the incumbents that they do not intend to increase their capacity drastically in the future.
- Playing a commitment strategy always keeps a potential entrant out of the market.
- If two horizontally differentiated products have the same price, all consumers will prefer the same product.
- A self-binding commitment changes a game from a simultaneous game to a sequential game.
5. Which of the following statements are true?
- In repeated interactions between companies, cooperation is more likely if ceteris paribus the interest rate is high.
- In a Prisoner’s Dilemma the players opt for the strategies that maximize joint payoffs.
- In sequential games, every Nash Equilibrium is sub-game perfect.
- In a Nash Equilibrium, any individual player cannot gain from unilaterally deviating from its strategy when all other players are playing their assigned strategies.
- Playing a game repeatedly always avoids inefficient solutions.
6. Imagine you are head of Sony Entertainment and responsible for the PlayStation game console. You have the chance to buy Arts Electronic, a company that sells a sports game for your console.
Should you agree to this acquisition? Choose all the reasons for your decisions:
- Yes. You could now decrease the price for your game console and sell more devices which raises demand for the sports game. This cross-subsidizing strategy may maximize the overall profits of the combined company.
- Yes. You could now decrease the price for your game console and sell more devices which raises demand for the sports game. This bundling strategy may maximize the overall profits of the combined company.
- Yes. You could now sell your console exclusively in a package with the sports game. Assuming that there is low competition for video consoles and high competition for video games, this increases the sales for the sports game and hence maximizes the overall profits of the combined company.
- Yes. You could now sell your console exclusively in a package with the sports game. Assuming that there is high competition for video consoles and video games, this increases the sales for the sports game and hence maximizes the overall profits of the combined company.
7. Imagine McDonalds and Burger King operate fast food restaurants in New York City. The restaurants are located close to each other and are in fierce competition.
To decrease competition and improve profitability…
- …Burger King could sell premium burgers from organic sources whereas McDonalds offers ordinary burgers of standard quality. This is called horizontal differentiation.
- …Burger King and McDonalds could reduce the density of their restaurants. This is called horizontal differentiation.
- …Burger King could focus on offering beef burgers whereas McDonalds only sells chicken burgers. This is called horizontal differentiation.
- …Burger King and McDonalds could reduce the density of their restaurants. This is called vertical differentiation.
- …Burger King could sell premium burgers from organic sources whereas McDonalds offers ordinary burgers of standard quality. This is called vertical differentiation.
- …Burger King could focus on offering beef burgers whereas McDonalds only sells chicken burgers. This is called vertical differentiation.
8. Imagine Coca Cola and Pepsi produce soft drinks of equal taste and quality. They are the only suppliers of soft drinks to the Olympic Games. They have a stall next to each other where they sell their soft drinks in cans that are specially designed for the event. The Olympic Games last for one week and both companies have to decide once and at the same time how many cans they want to sell.
In competition Coca Cola and Pepsi make each profits of € 180k. Instead of competing against each other Coca Cola and Pepsi could also cooperate and set monopoly quantities as if they would be an integrated monopolist. If both companies cooperate and set monopoly quantities they equally share the monopoly profits. A monopolist would achieve profits of €855 k. If one company is cooperative and the other one deviates, the cooperating company will achieve profits of €160 k whereas the deviating company will get profits of € 530k.
What will be the outcome of the game?
- Coca Cola will cooperate / Pepsi will cooperate
- Coca Cola will cooperate / Pepsi will deviate
- Coca Cola will deviate / Pepsi will cooperate
- Coca Cola will deviate / Pepsi will deviate
9. Which of the following statements are true?
- Product innovation comes at a fixed cost but usually decreases marginal cost.
- In special situations monopolists can have high incentives to invest in R&D.
- The value of innovation can be higher for firms in a competitive market than for a monopolist.
- The patent office explicitly invites firms to present sleeping patents because they usually provide welfare to consumers.
10. Apple (A) and Blackberry (B) compete in the market for smartphones. Both firms have to decide whether they want to engage in R&D for a new type of device with a 3D enabled haptic touchscreen. Because A is relatively more efficient in R&D, fixed costs for this R&D project are $10mn for A and $15mn for B. Both firms are equally likely to come up with a marketable innovation (probability p). Expected profits from the new technology are $15mn if one firm manages to be alone in the market and $5mn each if both firms come up with a product. We assume that there are no variable costs.
What is the expected payoff for A if both firms engage in R&D?
11. A strategy in the game theoretic sense is…
- …the determination of basic long-term goals and objectives of a firm.
- …the description of the actions a player will undertake in any possible circumstance.
- …the behaviour of a player that leads to a Nash Equilibrium.
- …the best alternatives a player has.
- …the behaviour of a firm in a certain setting.
12. A way to credibly commit to a strategy is…
- …to make a sunk investment.
- …to make sure that the opponent has full information.
- …to decrease variable production costs.
13. Firms use patents to decrease competition, especially with sleeping patents.
14. Two products A and B are complements if…
- …A increases the users’ utility from B.
- …the demand for A decreases when the price of B drops.
- …the demand for A increases when the price of B drops.
- …A decreases the users’ utility from B.
- …the demand for B increases when the price of A drops.
- …the demand for B decreases when the price of A drops.
- …B increases the users’ utility from A.
- …B decreases the users’ utility from A.
15. An incumbent firm may prevent entry of a competitor by…
- …raising prices.
- …decreasing the cost of imitation.
- …changing the entrant’s expectations about post-entry competition.
16. Niche entry is an effective entry strategy if…
- …products are sufficiently differentiated.
- …the entrant has a short-run perspective.
- …incumbent and entrant are comparably large firms.
17. Let’s get back to the one period competition case (question 8). Imagine now that the stalls of Coca Cola and Pepsi are not located next to each other but at opposite ends of the Olympic Games site.
Does this change the companies’ profits compared to the situation in question 8?
- Yes, the profits of both companies decrease.
- Yes, the profits of both companies increase.
- Yes, while the profits of Coca Cola decrease and the profits of Pepsi increase.
18. Imagine you are the CEO of Rolex. Your company and Breitling are the leading manufacturers of luxury watches.
A UK based film production studio plans a new James Bond action movie and approaches you with a product placement offer: If you pay £ 2mn, James Bond will wear a Rolex watch in the movie. The production studio makes clear that they will make the same offer to Breitling if you don’t accept the deal.
You receive the following information from your market research department:
• If you accept the deal, you can achieve additional gross profits of £ 1.5mn. Breitling’s gross profits decrease by £ 0.5mn.
• If Breitling accepts the deal and is lucky (probability = 50%), Breitling can achieve additional gross profits of £ 3mn. Your gross profits decrease by £ 1.5mn.
• If Breitling accepts the deal and is unlucky (probability = 50%), Breitiling can achieve additional gross profits of £ 2mn. Your gross profits decrease by £ 0.5mn.
• If neither Breitling nor you accept the deal, there is no change in gross profits.
Should you accept the deal?
19. A Nash Equilibrium usually contains dominated strategies.
20. Which of the following statements are false?
- It is hard for researchers to find out which entry deterrence strategies are most effective in the real world.
- Complete information makes it unnecessary to signal intensions.
- Limit pricing means that firms are bound to a price cap introduced by the competition authority.
21. Which of the following assumptions lead to the unrealistic prediction of the Bertrand paradox?
- Perfect market transparency
- No capacity constraints
- Imperfect market transparency
- Weak suppliers
- Differentiated products
- Identical products
- Infinite price elasticity
- Powerful suppliers
22. Applied research is more risky than basic research as a general rule.
23. The tradeoff between a replacement effect and an efficiency effect means that a monopolist has to decide between drastic innovation and process innovation.
24. The existence of substitutes makes a market less attractive, because…
- …the cross-price elasticity of substitutes is negative.
- …it affects the elasticity of demand of the focal product.
- …there are more firms in the market.
25. Pizza Hut and Domino’s Pizza bot sell pizzas at the city centre in Munich. Some consumers only like Pizza Hut, others prefer Domino’s Pizza. Most of the consumers make their choice dependent on prices. Each pizza stall can charge low, medium or high prices. The responding payoffs are illustrated in the payoff matrix below.
Which prices will the pizza stalls set, assuming that they are rational and profit maximizing?
- Pizza Hut – High Price / Domino’s Pizza – High Price
- Pizza Hut – High Price / Domino’s Pizza – Medium Price
- Pizza Hut – High Price / Domino’s Pizza – Low Price
- Pizza Hut – Medium Price / Domino’s Pizza – High Price
- Pizza Hut – Medium Price / Domino’s Pizza – Medium Price
- Pizza Hut – Medium Price / Domino’s Pizza – Low Price
- Pizza Hut – Low Price / Domino’s Pizza – High Price
- Pizza Hut – Low Price / Domino’s Pizza – Medium Price
- Pizza Hut – Low Price / Domino’s Pizza – Low Price
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