Market

Market Structures Simulation Analysis ECO 561 Market Structures Simulation Analysis Monopoly Quasar Computers is the pioneer of all optical notebook computer. Quasar Computers is a monopoly for the next three years and holds the patent on optical computers. In 2003, if Quasar Computers was to sell 5.3 millions ‘Neutrons’ for $2550, they would have a total profit of $1.29 billion. That is the maximum profit point where marginal costs equal marginal revenue. Quasar Computers are reviewing the advertising budget for 2004. The impact of advertising and promotional activities on demand, price, revenue, and profits. Robert recommends to increase the advertising budget to $600 million. Robert thinks with more investment in brand building would increase profits as the volumes rise. To achieve the maximum profit point, the consumer would need to purchase 7.7 million ‘Neutrons’ at $2450 each, for a total profit for Quasar Computers $2.74 million. Quasar Computers will be reducing production costs in 2005 by streamlining the manufacturing facilities. David recommends the upgrade the production process. According to David, the amount of waste during the production process increases the production costs. To upgrade the production process and machinery will cut out those losses and can result in the reduction of cost per unit. By selling 9.4 million ‘Neutrons’ for $2200, the total profit would be $2.21 billion, achieving the maximum profit point. Jane recommends specific improvements to the areas with major losses and improve them. As a result of the lack of competition, Jane recommends pass the increase cost of production to the customer by increasing the cost of the ‘Neutron’. With Jane’s recommendations, Quasar Computers would need to see the ‘Neutron’ for $2300. To achieve a maximum profit point, Quasar Computers would need to sell 8.8 million ‘Neutrons’ for a total profit of 1.52 billion at the price of $2300 each. Oligopoly Quasar Computer’s patent expires in 2006. Orion Technologies enters the market. Orion Technologies gains 50% of the market for optical notebooks. If Quasar Computers sells the ‘Neutron’ for $1750, they would have a profit of $56 million with a revenue of 120.3 million. The competition Orion Technologies markets their similar model for $1750 each, Orion would have a profit of $-162 millions with a revenue of 120.3 million. The impact of brand building initiatives on production capacity utilization. According to McConnell (2009) “Oligopoly pricing behavior…must pattern their actions according to the actions and expected reactions of rivals” (p. 232). Monopolistic Competition Quasar Computers sales has an increase as a result of consumers purchasing them for personal use along with corporate use. The market share has a decrease due to competition. Profits in optical computers are proving to be difficult in 2010. One can observe the impact of brand building initiatives on production capacity utilization. In 2010, Quasar launches several new models with low barriers to entry and the ease of differentiation. Quasar Computers will spend $200 million for brand development. If that allocation of budget has zero dollars for ‘Neutron’ and $200 million for ‘Ceres’ the profit for ‘Neutron’ would be $520 million and a profit for ’Ceres’ 785 million for a combined profit of 1305 million. With $100 million allocated toward ‘Neutron’ would have a profit of $735 million. Rajat recommends a launce of variant of the notebook for the publishing industry. It would be called ‘Ceres.’ Rajat sees that there is a low target volume and Quasar Computers would be able to set a premium price and earn higher margins. Quasar Computers would be able to use 12 million units of unused optimum production capacity and a decrease the average production costs for both products. Robert recommends to mainline the brand ‘Neutron’ through the same investment and with advertising, increase optimum quantity, promote more aggressively, and relaunch it. Perfect Competition In 2013, Quasar Computers acquires a controlling stake in supplier Optical Display Screens. Optical Display sells strictly online. In the stimulation, one can observe the changes in price of cost of production and the consequently profits for six months form the time of initial investment decision. David recommends that continual improvement would ensure that Quasar would have found ways to cut costs. If Quasar is to invest $10 million, Quasar would have a total savings accrued over the period of $78 per unit with a current profit of $0.25 per unit. Cost cutting may result in levels above the competition, but only for short term. With any imperfection in market by ways of cost savings will be replicated by others shortly. Conclusion Quasar Computers cannot pass its inefficiencies to the customers and expect to sell the same quantity. The demand for ‘Neutron’ faces a downward sloping curve where an increase of prices would mean a lower demand. The effort has been to stimulate demand and to reduce cost. A person may recommend the following pricing strategies: cost plus pricing were the price is set at the production cost plus a established an profit margin, value based pricing when the base price on the effective value to the consumer relative to comparable products, and target return pricing when the price is set to achieve a target return on investment. A non price measure may be increasing the quality without increasing the price. Quasar Computers strives for the ability to outperform industry competitors across business and economic cycles. According to Langlinais (2009) Future-value premium analysis can quantify the market's expectations of whether a company has a positive or negative growth advantage relative to its peers… future-value premium analysis leads companies to consider a portfolio of initiatives and the innovation required to build new growth platforms (para 7). Ways to sustain innovation for Quasar Computers could be achieve customer captivity, build meaningful economies of scale, and secure preferential access to resources. References Langlinais, T. C., Merino, M. A. (2009). How to Sustain Profitable Growth obtained from http://www.accenture.com/Global/Research_and_Insights/Outlook/By_Issue/Y2007/SustainProfitableGrowth.htm. McConnell, C. R., Brue, S. L., & Flynn, S. M. (2009). Economics: Principles, problems, and policies (18th ed.). New York: McGraw Hill/Irwin.