Strategy Simulation Exercise
Franyate D. Taylor
Submitted June 11, 2012
University of Maryland University College
Quasar Computers currently has a monopoly on the current supply of optical notebook computers branded Neutron. Over the next ten years Quasar encounters competition in their field and must utilize four different market structures to continue to see profit and increase revenues. In 2003, Quasar had to determine the impact of price on demand, revenues, and profit while trying to maintain a monopoly on the market for the next three years. In those three years, Quasar focused on advertising and production upgrades to sustain this monopoly. ...view middle of the document...
The price chosen to sell Neutron was $2,550 due to the marginal cost equaling the marginal revenue and marginal cost cuts the marginal revenue from below. At this price, Quasar see’s a total cost of $12.18 billion, total revenue of $13.5 billion, and a total profit $1.29 billion. At this point in 2003, Quasar has a firm competitive advantage over the market. As Mullins & Walker (2011) state, Quasar may possess the resources that its competitor do not have but this does not guarantee superior performance in the future. With this known, Quasar wanted to increase their operational effectiveness in the budget for advertising and production as it impacts on price (Porter, 1996). Allotting $600 million to advertising in 2004 and upgrading their production process allowed Quasar to maximize profits. The simulation noted that our decisions were optimal and that the use of a monopoly strategy is for price makers, as cost cannot be passed on to the customer. For the future Quasar will need to improve on there inefficiencies with cost of their product to increase demand for Neutron.
In 2006, Orion Technology came onto the market strong and stealing 50% of the market shares that Quasar normally had complete control over. With competition Quasar now saw them in an oligopoly situation where the number of sellers is small however big enough to affect the market. In the simulation, Quasar had to accurately predict the competitor reaction of a price change to continue to remain competitive in the market. The revenues, market shares, and profits depend on both company’s absolute price and relative price. The differential between the two determines your market share, revenues, and profit. Bottom line is for either company to make a profit they have to reach a stable price. In 2010, Quasar suffered a significant decrease in market shares due to the competition. At this point Quasar had to make a choice whether to invest more marketing or advertising on Neutron the signature brand computer or develop a new brand computer named Ceres. The uniqueness of the Ceres allowed Quasar to utilize the monopolistic competition strategy to produce a slightly different product for the market. In the simulation Quasar determined that the development of a new brand would increase their overall market share. This value-based position taken by Quasar resulted in over $1,305 in combined profit for both Neutron and Ceres. If Quasar had undertaken the advertising approach they might not have seen the high returns, as the demand will have peaked with Neutron alone. At the ten-year mark (2013), Neutron’s market shares and profit margin had stabilized. ...