In light of these estimates, do you think it is profitable for Way Cool to engage in limit pricing? Is any additional information needed to formulate an answer to this question? Explain.

Discuss labor management relations.
January 4, 2018
While the actual cost of a smart-phone is about $300, wireless carriers in some countries offer their customers a “free” smart-phone with a two-year wireless service agreement. Is this pricing strategy rational? Explain.
January 4, 2018

In light of these estimates, do you think it is profitable for Way Cool to engage in limit pricing? Is any additional information needed to formulate an answer to this question? Explain.

Suppose that, prior to other firms entering the market, the maker of a new smart-phone (Way Cool, Inc.) earns $80 million per year. By reducing its price by 60 percent, Way Cool could discourage entry into “its” market, but doing so would cause its profits to sink to −$2 million. By pricing such that other firms would be able to enter the market, Way Cool’s profits would drop to $30 million for the indefinite future. In light of these estimates, do you think it is profitable for Way Cool to engage in limit pricing? Is any additional information needed to formulate an answer to this question? Explain.

 

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