** Please see the attached file for the complete solution response **
Thomas and Maurice, Managerial Economics,9th ed., McGraw-Hill , ISBN 9780073402819
Q1: Suppose the two rival office supply companies Office Depot and Staples both adopt price matching policies. If consumers can find lower advertised prices on any items they sell, then Office Depot and Staples guarantee they will match the lower prices. Explain why this pricing policy may not be good news for consumers.
Q2: Recently one of the nation's largest consumer electronics retailers began a nationwide television advertising campaign kicking off its "Take It Home Today" program, which is designed to encourage electronics consumers to buy today rather than continue postponing a purchase hoping for a lower price. For example, the "Take It Home Today" promotion guarantees buyers of new plasma TVs that they are entitled to get any sale price the company might offer for the next 30 days.
a. Do you think such a policy will increase demand for electronic appliances? Explain.
b. What other reason could explain why this program is offered? Would you expect the other large electronics stores to match this program with one of their own? Why or why not?
Q3: Suppose that Nike and Adidas are the only sellers of athletic footwear in the United States. They are deciding how much to charge for similar shoes. The two choices are "Low" and "High". The payoff (profit as million) 2X2 matrix is as follows: (please see the attached file)
1. The reason that price matching (pm) is bad for consumer is because it encourages collusion. Say there is a computer that staples sell for $500 office depot sells that same computer at the same price too. If there is no pm, then staples may try to lower price (say down to $450) and capture the entire market (because each brand has so many stores in the city, we won't consider consumers traveling as a problem). Staples makes all the money and office depot makes nothing. Office Depot then (say two weeks later) will find out that it lost all of the consumers who wants to buy the computer, so office depot will lower prices to $400 and capture the entire market. The competition leads to lower ...
This solution explains how to solve several economics questions. One is regarding price matching; another analyzes a price reduction strategy; the final one shows how to determine the Nash equilibrium of the problem.