Reference no: EM132421729

a.) In a vertically integrated firm, if the relative importance of administrative and transaction costs shifts from one to the other, what could the firm do?

b.) How could a firm protect itself and grow in an industry characterised by low barriers to entry? Give two examples of entry barriers. For each example, explain whether it is an absolute or a relative barrier to entry. What are the requirements for each of these deterrence strategies to be successful?

c.i) Consider an industry consisting of an incumbent (M) and a potential entrant (E). Each year, market demand for this industry is given by P = 600 - (qM + qE). The incumbent faces costs of CM(qM) = 70qM. The potential entrant faces costs of CE(qE) = 75qE + F. To deter entry the incumbent has the option to install capacity before the entrant appears; the cost of this capacity is sunk.

What quantity of capacity should the incumbent commit to install? Explain why the incumbent would not install more or less capacity than specified in this interval.

(c.ii) Under what conditions would the incumbent choose to completely deter entry? What quantity of capacity would the incumbent have to install to achieve entry deterrence?

d.) Why is there a trade-off between global integration and national differentiation? How will this affect a Multinational Corporation's strategy?