Question

QUESTION 5 Anheuser Busch Inbev and MillerCoors control 80% of the American beer market. The two firms were originally in a price war prior to 2008. The two firms attempted to cut their prices to gain control of a larger share of the market. However, after the Global Recession in 2008, the price of their beer has risen. Answer the following questions: a. The Average Total Cost of both firms' beer production has steadily decreased (through economies of scale) as they have gained a greater proportion of the market. Is this an example of a barrier to entry? Type Y for Yes or N for No. b. The two companies are deciding whether or not to introduce a new wheat beer into the American market. The payoff (in millions of dollars) represents the expected first year economic profit from each strategy. What will be the resulting first year economic profit from MillerCoors (the left player) after playing the game?$ Answer in millions of dollars (i.e. a value shown in the table, with no decimal places, $ sign, spaces or commas). Introduce the Beer 15, -20 0, 85 Does not introduce 40,0 0,0 Introduce the Beer Does not introduce c. Which player has a dominant strategy? Type either A for Anheuser or M for MillerCoors. Type IB for Introduce d. What is the dominant strategy for the player you chose in part c? the Beer or DN for Does Not Introduce.

Answer 1

Answer 6:

a.Yes, a fall in the average cost of production is an example of barriers to entry as the new firms will have difficulty to produce at such a low cost of production in initial stages and this creates barriers to entry for the firm as it cannot produce at low cost and thus will keep prices high as compared to the incumbent firms in the market.

b. $40, the left player or Miller Coors will introduce the product in the market. Once it introduces the product in the market, the other player will earn a higher profit by not introducing the product in the market and thus left player will earn a profit of $40.

c. MillerCoors has a dominant strategy of introducing beer in the market because no matter what the other player does, it will introduce the product in the market.

d. The dominant strategy of Miller Coors is introduction of product in the market.