Based on the information provided in the case, illustrate the pricing game between Sony and Microsoft using
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Question:
Based on the information provided in the case, illustrate the pricing game between Sony and Microsoft using a 2-by-2 payoff matrix when Sony and Microsoft charge for their games $399, or lower price to $299 as their price competition strategy.
- Given the price information given in Exhibits 1 and cost information for both companies in Exhibits 2 & 3, find the average variable cost of making a video game produced by Sony and Microsoft.
- Find the per unit and total video contribution margins for each company when they charge $399 for Sony’s PS3 video game and Microsoft’s Xbox video game.
- Calculate the pay-offs(profits) when each firm charges $399, Microsoft charges $399, but Sony charges a lower price of $299, when Sony charges $399 and Microsoft charges $299, and both charge $299, In other words, fill out the pay-offs in each of the four quadrants.
- Assume that the demand curves for the games is linear. a) Calculate the own point price elasticity's of demand for video games implied by the data at prices of $299 and $399 for both Sony and $399 for both Sony and Microsoft, b). Did Sony and Microsoft make the correct decision in cutting the price of their game from $399 to $299? Yes, or no and why, or why not?
Exhibits with Numbers
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