Company faced with acompetitors price reduction

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Reference no: EM131420656

Consider a company faced with acompetitor’s price reduction. Should the company also reduce price in order to maintain market share or should the company maintain its current price? The company has conducted some preliminary research showing the financial outcomes of each decision under two competitor responses: the competition maintains its price or the competition lowers its price further. The company feels pretty confident that the competitor cannot lower its price further and assigns that outcome a probability (p) of 0.7, which means the other outcome would have only a 30 percent chance of occurring (1minus−pequals=0.30.3).These outcomes are shown in the table below:

Company action Competitive Response Maintain Price pequals=0.7 Reduce Price (1minus−p)equals=0.3 Reduce Price $165,000 $145,000 Maintain Price $185,000 $115,000 The expected monetary value (EMV) of reducing the price is (Round to the nearest dollar.) The expected monetary value (EMV) of maintaining the price is (Round to the nearest dollar.) __________ is the best alternative for the company.

Reference no: EM131420656

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