Question

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1. What entry barriers exist in (a) the fast-food industry, (b) cable television, (c) the auto industry, (d) the illegal drug trade, (e) potato chips and (f) beauty parlors?

2. Why does RC Cola depend on advertising to gain market share? Why not offer cheaper sodas than Coke or Pepsi?

3. If an oligopolist knows rivals will match a price cut, would it ever reduce its price?

4. How might the high concentration ratio in the credit card industry affect the annual fees and interest charges for credit card services?

5. Why do 4,000 new pizzerias open every year? Why do just as many close?

6. Name three products each for which you have (a) high brand loyalty and (b) low brand loyalty. Give a brief rationale why.

7. If one gas station reduces its prices, must other gas stations match the price reduction? Why or why not?

8. How would our consumption of cereal change if cereal manufacturers stopped advertising? Would we be better or worse off?

Answer 1

1.

(a)The fast food industry -- basic barriers can be in acquiring franchise or licence for a individual resturant or cafe .

(b) cable television -- primary barriers is obtaining a local or area wise licence . However after establishment have to face market competition , as most of the customer are preferring D2H connection and high startup cost .

(c) auto industry --- brand loyalty and extraordinary start-up cost and acquiring market.

(d) illegal drug trade --- since it is an illegal Market custom and security issues may arise , new entrance will be kept out of industry and have to face threats from current suppliers

(e) potato chips ---- natural barriers may exist , some producer may own a special variety of potato which is best suited for potato chips.

(f) beauty parlour ---- may require license for health and sanitary

2.if RC were offer soda at a lower price, there is a good chance that not only Coke, but Pepsi mightretaliate by lowering their prices. RC should instead use the money it would ultimately lose by cuttingprices to advertising and promoting their product because they hold the smallest share between the three colas .

3. an oligopoly
firm does not find it profitable to change its price even if there is a considerable change
in cost of production. The logic behind this proportion is as follows. An oligopoly firm
believes that if it reduces the price of its products, rival firms would follow and
neutralize the expected gain from price reduction. But, if it raises its prices, rival firms
would either maintain their prices or may even cut their prices down. In either case, the
price raising firm stands to lose, at least a part of its market share. This behavioural
assumption is made by all the firms with respect to others. The oligopoly firms,
therefore, find it more desirable to maintain their price and output at the existing level

4.credit card interest rates have been exceptionally sticky relative to the cost of funds. Moreover, major credit card issuers have persistently earned from three to five times the ordinary rate of return in banking during the period 1983-1988. The failure of the competitive model appears to be partly attributable to consumers making credit card choices without taking account of the very high probability that they will pay interest on their outstanding balances.

5.This situation will continue to happen due to the law of demand and supply and force of competition. As it is presented that every year almost 4000 pizzerias open and same numbers are closed so market is in equilibrium state which states that the demand of the market is being fulfilled. Since competition is relative constant and price wars are unlikely, since profits need to be made we see a trade-off between openings and closings. The existing number of pizzerias are able to fulfill the market demand and if any new store opens, it will create competition for others and then there will be a loss of profit which will result the closing of similar number of stores. Basically, there is only one pizza pie and that pie cannot feed more mouths then it is intended to.

6. high brand loyalty product are ----- Apple inc. , coca-cola , redbull

low brand loyalty are --------------- facebook(in america) , comcast , phillip morris

Brand loyalty is when a customer continues to purchase from your company, not because you’re the only option, but because they trust your company Customers that exhibit brand loyalty are devoted to a product or service, which is demonstrated by their repeat purchases despite competitor's efforts to lure them away. Corporations invest significant amounts of money on customer service and marketing to create and maintain brand loyalty for an established product.

When a company ignores consumer trends, they might lose brand-loyal customers, which could lead to forfeiting potential profits and eroding the company's market share. Many large corporations, which once had a monopolistic advantage, such as Blockbuster, failed because their product was misaligned with their customers' changing needs. To assume that a product will always meet the needs of the consumers is a certainty for failure.  

where as customer are loyal because the brand adopt transparancy , project the right image and is always authentic

7. may or may not , its depend on the brand and the brand loyalty , if the market needs the gas price to reduce to meet the customer demand than it has to .

8.f cereal manufacturers stopped advertising, I don’t think our consumption of cereal will change much. Ithink the things that change is from which manufacturer we will buy if there is no advertising and it cant be worse just try the product and if it is good, repurchase, if it is not good, change to different manufacturer. I think wewould be better off because of lower price and maybe better quality. Once the manufacturers couldn’tbase on advertising to create its brand image or brand loyalty, they will use their quality to do so. Inaddition, they don’t have to pay the cost of advertise, that mean their cost will be lower. Thus they cancharge lower price for their products.

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