Suppose an industry is composed of six firms. Four firms have sales of $100,000 each, and two firms have sales of $50,000 each.
a. Explain how concentration ratios are calculated. Determine the concentration ratios in the market.
b. Explain how the Herfindahl-Hirschmann index is constructed. Determine the Hefindahl-Hirschmann index for that industry.
c. Based on the FTC and DOJ Horizontal Merger guidelines, do you think that the FTC would attempt to block a horizontal merger between two firms with sales of $100,000 and $50,000? Explain.
d. Explain how the FTC decides on whether to challenge a proposed merger? What other aspects does the agency consider in addition to the HHI and market concentration ratios?
Bookselling is an industry where product differentiation matters. Since books themselves are identical, retailers must concentrate on other things to attract and retain customers. In You’ve Got Mail differentiation factors include location, selection, service, and price, among others. In theory there should be room both for small and large book stores, but Fox Books wants to drive the smaller rival out of business.
Write an essay titled “Competition Strategies in the Bookselling Industry.” Using your textbook and the movie excerpt, address the following questions in the essay:
a. Explain what type of market structure is presented in the movie. Explain the types of strategies Joe Fox and Kathleen Kelly use to compete and maintain market power. Differentiate between pricing and non-pricing strategies (use Chapter 7 in Stengel’s textbook). You can expand and talk about potential strategies in the bookselling business even if they were not explicitly addressed in the movie.
b. Explain the difference between the Industry (external) view and the Resource (internal) view of sustainable competitive advantage (use Chapter 10 in Froeb/McCann). Make sure you explain Porter’s Five Forces model and the resources and capabilities emphasized by the Resource Based View. Which of the two approaches in your view is more suitable for the analysis of the bookselling industry presented in the movie?
c. List the three basic strategies to generate superior market performance (use Chapter 10 in Froeb/McCann). Which of the three strategies would you recommend to Joe Fox and Kathleen Kelly?
These solutions may offer step-by-step problem-solving explanations or good writing examples that include modern styles of formatting and construction of bibliographies out of text citations and references. Students may use these solutions for personal skill-building and practice. Unethical use is strictly forbidden.In the movie You’ve Got Mail, Kathleen Kelly runs a successful small bookstore in New York, as another large retail chain bookstore is opened by Joe Fox just around the corner. Drawing from the scenes in the video clip, Kathleen identifies the differences between the goods and services offered by both stores and muses that this kind of differentiation could be good for her small bookstore. In cases where firms compete by differentiating their products, they are operating in a monopolistic competition structure. In the bookselling industry that follows this market structure, the companies sell products that are very similar or even identical. To stand out and compete, they introduce various strategies to differentiate their services and products as the basis of their sales and marketing.
In the movie, Kathleen and Joe both use both pricing and non-pricing strategies to differentiate their products in a bid to retain and attract new customers. The non-pricing factors include store location, book selections, and customer service while pricing strategies include discounted prices. Theoretically, both stores can co-exist in the same market, but Joe Fox wants to drive out the smaller bookstore out of the market. In this case, Joe who runs the larger superstore focuses on product differentiation strategies that work to his advantage. Fox Books operates on product differentiation strategies that rely on large volume sales to achieve better economies of scale. In this case, Fox Books has a wider book selection, discounted book prices, and other complementary goods and services such as pastries, music, and coffee. Fox Books is able to offer price discounts compared to the smaller bookstore since the...
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