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Strategic Behavior Oligopolies

Scenario
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? Respond substantively to at least two of your classmates' postings. Substantive responses use theory, research, and experience or examples to support ideas and further the class knowledge on the discussion topic.

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? In 300 words or more, please, provide your response to the above discussion questions. Respond substantively to at least two of your classmates' postings. Substantive responses use theory, research, and experience or examples to support ideas and further the class knowledge on the discussion topic.

Solution Preview

Step 1
Microsoft and Apple operated in a market structure called oligopoly. This is a market form in which a market or industry is dominated by a small number of sellers. The industry was at that time dominated by a small number of sellers including Microsoft and Apple. Microsoft wanted to preserve competitiveness in the market because the Department of Justice was investigating the industry under the Sherman Antitrust Act of 1890. The subject of investigation was the operating system sales and web browser sales of Microsoft. The main issue was that should Microsoft be allowed to bundle the sales of Windows operating system and its web-browser Internet Explorer. The allegation was that the bundling together of Windows and Internet explorer was responsible for Microsoft assuming a competitive advantage in the browser industry. The contention of the opponents of Microsoft was that the company was including internet explorers with every copy of Microsoft Windows. This amounted to bundling and was a prohibited practice under the law. Microsoft needed to ...

Solution Summary

This solution explains Microsoft's investment in Apple. The sources used are also included in the solution.

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