Question

In: Economics

Waymo is a division of Alphabet (Google’s parent company) that is developing the technology for driverless...

Waymo is a division of Alphabet (Google’s parent company) that is developing the technology for driverless

cars. Waymo CEO John Krafcik is under pressure to offer a commercial driverless taxi service in the Phoenix

area as soon as Fall 2018. Analysis at web-site arstechnica.com suggests that Waymo has by far the most

advanced technology available for this type of service.

Is it likely that being first into this market will give them a large advantage? Is Waymo likely to earn

unusually high accounting profit for a long period of time? Discuss using concepts from this class.

Solutions

Expert Solution

Waymo has, by far the most advanced technology of this type of service and it will give the company large advantage if it gets a copyright on their technology and makes sure that the technology is not copied. Also,it should make sure that the production process is as efficient as possible and the cost are least. If it posseses economies of scale in the long run only then it would be able to make profits in the long run. If there are hige sunk costs involved, then it would be even more difficult for the new fims to enter the market. Only if Waymo has the above mentioned advantages, will it be able to operate as a monopoly in the long run and earn huge profits, otherwise once the technology is copied, this would not be possible.

Also, for long run, it should keep investing in R&D, to have an upper edge and keep upgrading its technology to make super normal profits in the long run and will be able to deter the new firms from entring the market.

Rahul Sunny answered 6 months ago
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