Strategic Behavior Oligopolies and Local Market Power

Week 4 Discussions and Required Resources

Two-part assignment – All parts must be at least 300 words unless otherwise noted. Please read all attachments and follow ALL instructions.

Part 1: Strategic Behavior Oligopolies
An interesting example of strategic behavior comes from a 1997 article about Microsoft’s investment in Apple (New Straits Times, 1997). The article is included in the Required Readings list. Facing tough anti-trust scrutiny from government agencies, Microsoft provided financial support to Apple in order to ensure Apple’s survival and, therefore, to ensure that competitiveness in the industry remains. Moreover, the partnership with Apple provided an additional market for Microsoft’s products – the MS Office and the IE products were to be bundled with the MAC OS as one of the conditions for this financing. Discuss this case in the context of market structure and strategic behavior. What market structure do these firms operate in? Why did Microsoft need to preserve competitiveness in the industry? What was Microsoft afraid of in the event that Apple did not survive?
 
Guided Response: In 300 words or more, please, provide your response to the above discussion question. Further, do you think Microsoft regrets taking action in light of Apple’s performance today? 

Part 2:   Local Market Power
Bulls Eye department store specializes in the sales of discounted clothing, shoes, household items, etc. similar to the offerings at a regular Walmart or Target. Bulls Eye is the only department store in Show Low and the nearest other discount retailer is Target, located 49 miles away in Eagar. Bulls Eye, therefore, has some market power in its local area. Despite having some market power, Bulls Eye is currently suffering losses. An analyst at Bulls Eye is recommending to the manager to raise prices, so that profitability can be improved. The manager is unsure of this strategy as recent data points to increasing numbers of individuals shopping more and more. What are the pros and cons of raising the prices at Bulls Eye and would that strategy be profitable?
 
Guided Response: Consider demand elasticity and market structure in your response. How is increasing of the price going to impact the company’s revenues given its demand elasticity? 

Required Resources
Text
Please read the following chapters in: Managerial Economics:

Douglas, E. (2012). Managerial Economics (1st ed.) [Electronic version]. Retrieved from https://content.ashford.edu/

· Chapter 7: Market Structure and Price Determination
· Chapter 8: Pricing Decisions in Practice

Article
· Straits Times. (1997, August 8). Microsoft-Apple Partnership Stuns Computing Industry (Links to an external site.). New Straits Times –  Google search. Retrieved November 13, 2012, from http://news.google.com/newspapers?id=rZxOAAAAIBAJ&sjid=HBUEAAAAIBAJ&pg=6732,188074&dq=apple+partnership+with+microsoft&hl=en 
Websites
· Bloomberg (Links to an external site.). (http://www.bloomberg.com)
· Cable News Network (Links to an external site.). (http://www.cnn.com)
· The Economist (Links to an external site.). (http://www.economist.com)