Describe how competition from Gakk Pharmaceuticals would affect Aveta's profits from Taziclor. Include the following in your report:
? In qualitative terms, discuss how Gakk's potential entry into the market would affect the market demand curve for cures for the common cold and Aveta's (firm-specific) demand curve for Taziclor.
? Discuss how Gakk's entry would affect the way Aveta sets its profit-maximizing price.
? Identify the amount of money Aveta should be willing to pay for the right to Palant Research's patent. Explain why paying this amount would be worthwhile for Aveta.
? Analyze whether Nia Simms's suggested pricing strategy would have any value in deterring Gakk's entry or any potential future entry.
? Assuming that Gakk does enter the market, discuss the profits associated with different pricing scenarios, and identify the equilibrium price and profits for each firm. Evaluate how a focus on short-term or long-term goals would affect potential profits.
? Identify the price-cost margin for Taziclor under the price you have recommended for Aveta. In qualitative terms, compare this price-cost margin to what it would be under a monopoly setting.
? Identify the necessary conditions for Aveta to create a win-win situation in pricing Taziclor. Explain whether Aveta can satisfy these conditions based on its current situation. Propose and evaluate at least one strategy Aveta could use if it wanted to try to create a win-win situation in its competition with Gakk.
Before Palant Research Announcement
Demand Elasticity: -1.2
Marginal Cost $2.00
Fixed Costs: $8,000
Profit Maximization Price: $12
Lerner Index: .833
Demand Elasticity: -1.6
Marginal Cost $3.00
Fixed Costs: $5,000
Profit Maximization Price: $8
Lerner Index: .625