Company G, a European firm specializing in luxury
cars, is willing to penetrate the
corresponding US market, currently monopolized by local firm S.
Marginal production cost is the same for both companies, constant,
and equal to $40 (hereafter, all prices and costs are in
thousands). Transporting cars from the EU to the US costs $5 per
car. Building a plant in the US requires a fixed cost equal to
$550. The two companies’ products are differentiated and in case G
enters the US market, there will be price-competition and each
firm’s demand will be
?? = 100 − 2?? + ??, ?,? = ?, ?, ? ≠ ?;
Currently there is no US tariff on foreign luxury-car
imports, but in its effort to maintain its dominant position in the
US market, S hires a lobbying company to pressure for the
imposition of a tariff t per imported car. The lobbying
company offers two alternatives at the same cost: a
campaign for a $10 or $15 tariff per imported car.
a) Must S opt for lobbying and which one of the two tariffs should
it target? Explain.
b) If consumers can lobby as well, should they fight against any
tariff? Explain.
Cost of a car to S is $40.
Cost of a car to G in the US is $45.
a. Assuming that both the cars are equal in every aspect, there should be no need for any lobbying. But if at all it is opted, S should go for the campaign. Because if the cost of a car to G increases substantially, G might build a plant in the US.
b. Behaviour of the consumers is guided by many aspects, including price, nationality, luxury, after sales service, etc. So everything else being the same, an American citizen will not buy an imported European car, that too for more price.
Company G, a European firm specializing in luxury cars, is willing to penetrate the corresponding US...
Company G, a European firm specializing in luxury cars, is willing to penetrate the corresponding US market, currently monopolized by local firm S. Marginal production cost is the same for both companies, constant, and equal to $40 (hereafter, all prices and costs are in thousands). Transporting cars from the EU to the US costs $5 per car. Building a plant in the US requires a fixed cost equal to $550. The two companies’ products are differentiated and in case G...
Company G, a European firm specializing in luxury cars, is willing to penetrate the corresponding US market, currently monopolized by local firm S. Marginal production cost is the same for both companies, constant, and equal to $40 (hereafter, all prices and costs are in thousands). Transporting cars from the EU to the US costs $5 per car. Building a plant in the US requires a fixed cost equal to $550. The two companies’ products are differentiated and in case G...
Company G, a European firm specializing in luxury cars, is willing to penetrate the corresponding US market, currently monopolized by local firm S. Marginal production cost is the same for both companies, constant, and equal to $40 (hereafter, all prices and costs are in thousands). Transporting cars from the EU to the US costs $5 per car. Building a plant in the US requires a fixed cost equal to $550. The two companies’ products are differentiated and in case G...
Foreign Direct Investment and Alternatives:Company G, a European firm specializing in luxury cars, is willing to penetrate the corresponding US market, currently monopolized by local firm S. Marginal production cost is the same for both companies, constant, and equal to $40 (hereafter, all prices and costs are in thousands). Transporting cars from the EU to the US costs $5 per car. Building a plant in the US requires a fixed cost equal to $550. The two companies’ products are differentiated...
There are only two luxury electric car producers in Carmania, Firm 1 and Firm 2. The cars they produce are essentially identical. The market inverse demand function for luxury electric cars in Carmania is given by P=a−b*Q, where P is price (in thousands euros); Q market output (in number of cars); and α and b are parameters. Competition in the Carmania auto market works as follows: At the beginning of each year, both firms simultaneously and independently decide how many...
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