Question

UNIX is a powerful multiuser operating system designed for use with servers. UNIX’s popularity has grown since it was developed by Bell Labs in 1969, as Internet usage has expanded dramatically. More recently, however, a branded version of another operating system has become available. This product, called Red Hat Linux, is a potential replacement for UNIX and other well-known operating systems.

1. Discuss the characteristics of this market and how they affect the conditions for entry. What uncertainties might Red Hat face upon entry?

2. Discuss actions that UNIX might take to deter entry, if it is not blockaded.

3. Discuss what you would recommend as a pricing strategy for Red Hat and why you recommend it.

Answer 1

1. The above case is an example of monopolistic market, with one firm operating in market, that is Bell Labs.

Bell Labs had designed various operating system, among them most popular is UNIX. Red Hat Linux is the replacement of UNIX.

If we conside the market on the basis of different operating system, then we can even consider it as oloigopolistic, due to different product and its usage.

In both the conditions, the entry of new firm in market would be restricted, and existing firm will not accomodate another firm as it may lead to profit sharing.

The sudden fall of prices by existing firm, to eliminates any upcoming competition could be the other mannner to create hurdle in Red Hat's entry.

2. The various method by which UNIX could restrict entry of new firm are: -

a) there could be very high entrance fee for operating market, which may subsume all expected profit.

b) the existing firm may reduce its price drastically as short term adjustment to eliminate entrance of new firm.

c) negative publicity of new firm.

d) the existing firm's customer may not shift their demand towards new firm due to popularity of UNIX.

3) In the initial operation of Red Hat, reduced prices might not be benficial for survival, as already existing firm would be able to compete in that way to eliminate competition.

However, the best pricing strategy would be to work in collusive form so that both the firm would be able to earn profit.

Apart from that, the Red Hat should work on builiding customers trust, and providing such operating systems that would provide beneficial edge on UNIX and cost efective. Better services could be the another manner to build goodwill in market.