Quasar_Computer

Simulation Overview Credited with launching the world's first all optical notebook, Quasar Computers has branded their revolutionary wonder, the 'Neutron', a good choice due to speed capabilities five times the current conventional micro-chip processor. Quasar also enjoys a monopoly granted, by patent rights in 2003, for three years. (University of Phoenix, 2009) This paper will explore strategic variables best suited to sustain company profits through the years of monopoly and thereafter, as market structure changes. Solution to Sustain Profits Quasar needs to decide on a launch price for Neutron and monopoly indicates the best strategy is MC = MR rule. A price of $2,550 is where total profit equals 1.29($bn). With no suitable substitutes, advertising is a key decision throughout the coming year of 2004. $400 million budgeted at 2003 launch is increased to $600 million for 2004, investing in brand building. Pricing Strategies – 2004. The strategic move for profit maximization is reducing price to $2,450, where MC = MR. Successful advertising campaigns are targeted at large corporations. Price reduction to $2,450 is optimal for 2004. Large increases in sales volume, generates a total profit of 2.74($bn). Non-Pricing Strategies – 2005 Quasar production efficiency has come up. After a successful pricing and advertising campaign, now's the time to improve manufacturing processes, reducing production costs. A comfortable revenue stream from increased demand has generated the need for increased output. The decision is made to invest in upgrading production processes for 2005. Price set at $2,200 reflects total profit of 2.21($bn). Quasar still enjoys a monopoly and can set price for Neutron higher. Keen management realizes the patent will expire soon and with a downward sloping demand curve, an increase in price will result in decreased demand (McConnell & Brue, 2004). Investment in advertising for brand confirmation, while improve productivity, streamline production, and ensure future profits. Market Strategies – 2006 Three successful years have passed and the optical technology patent has expired. Legal entry into the oligopoly market structure by Orion Technologies with a similar computer has created fierce competition, as Orion captures 50% of the market. Protecting Quasars market share through competitive pricing and advertising is necessary. Scrutiny of Orion's monthly price is critical, as it influences Quasars pricing strategy, profit margins and market share. Orion's price last month was $1700. Pricing strategy now includes predicted monthly price offering by Orion and calculating best prices for Quasar to retain current market share and generate profit. A price is set at $1750 for the month. This price retains market share generating a sub-optimum profit of 56($mn). Both companies show matching revenue. With competition escalating, profit and survival depend upon accurate prediction of price changes by Orion. Price stability for both competitors in important while generating a reasonable profit. Survival of both companies is reliant on continued consumer demand. Market Strategies – 2010 Optical computers are now more affordable and personal use more common. The technology is easily available, resulting in more sales of Quasar computers. A monopolistic competition invites more competitors into the market. (McConnell & Brue, 2004). Competition results in lost market share, where profits are challenging. Current low barriers to entry and ease of differentiation help introduce several new models by competitors. Quasar must decide to invest further in brand development of Neutron, or introduce a new computer called Ceres. Non-Pricing Strategies – 2010 Management on one side suggests the introduction of Ceres will offer a differentiated model with little investment in new features, premium pricing, and low target volumes. Exploiting the small amount of unused capacity will bring price per unit cost to a minimum. Using 12 million units of unused production capacity lowers production costs of both Neutron and Ceres. Brand advertising approaches 200 million. The alternate option is to continue building Neutron at current advertising budget. Spending $200 million on aggressive promotion to relaunch, would enable sales of an additional 2 million units at the same price. This would make use of the excess capacity through aggressively stimulating demand to reach optimum quantity. Scrutiny reveals that Quasars market share has been depleted from the multitude of differentiated products available. Unlikely Quasar will regain previous market levels, this situation calls for an attempt to stimulate demand for Neutron and capture as much market share as possible in the short run. This can be accomplished by committing the $200 million on advertising for the launch of a new brand. By promoting and developing the new product properly, new target markets can be reached and exploited. Conclusion – 2013 After 10 years, optical notebooks reach maturity and profits stabilize. Quasar recently acquired controlling interest in Opticon, a supplier of optical display screens. Sales are strictly online with buyer orders based on supplier prices. Management thinks Opticon cannot profit in a purely competitive market. Any improvement will be quickly replicated with market correction. An idea for continuous monthly improvements to stay ahead of replication, introducing market imperfections is suggested. A six-month short run plan is implemented to maximize profits. In perfect competition, focus is on cost reduction, price is determined by market. Cost cutting results in short run profits over competition. Replication of similar products will catch up, resulting in price reduction and zero profits for firms. The scenario shows that while the competition was able to replicate efforts enlisted at Opticon, overall profits were increased and sustained over the short run. Although profits declined over six month periods, the end of the year reflected supernormal profits due to cost savings initiatives. Long run profit increases cannot be sustained with process improvements in a perfectly competitive market. Listed below, are semi-annual savings and profit figures. Total investments in production equal 40 ($mn). Total savings accrued over the period equal 108 ($/unit). Savings accrued over the period equal 0.54 ($/unit). Current profit equals 0.44 ($/unit).