Prompting Questions:
Briefly summarize the decision Microsoft and Sony have to make. What are potential short-term consequences, what are potential long-term consequences
Given the information in Exhibits 1, 2, and 3, would you predict that Sony and/or Microsoft will want to reduce console prices? Use a 2-by-2 one-shot simultaneous game to analyze this short-run situation. You can assume Nintendo monitors its competitors’ actions, but has no plans to change its price. Take care to explain your set-up and why it captures essential and relevant features.
Is your predicted outcome maximizing the joint profit Sony and Microsoft generate? Why or why not?
Considering that Sony and Microsoft interact with each other all the time, might they arrive at the jointly-profit-maximizing outcome due to that repeated interaction? Assume that the two options are to discount for the 2009 holiday season or the 2010 holiday season. Find Microsoft’s Sony’s respective discount factors that would postpone the discounting to support your argument.
Sony and Microsoft have significant market power. We would expect them to sell their consoles at a significant mark-up above marginal (or average) cost. Find that mark-up. Is it significant?
What other factors may weigh in to Sony’s and Microsoft’s pricing decisions? Link your answer to this question to your observations in point 4 and 5.
In conclusion, do you disagree or agree with the Wall Street Journal’s prediction from August 2009?
USE OF GRAPHS AND TABLES FOR ANALYZING DATA AND VIZUALIZATION IS STRONGLY RECOMMENDED.
