PowerAir Inc., a subsidiary of a successful multinational manufacturing firm, supplies a key component in the assembly of residential air conditioning units. At this current stage, there are only five suppliers of this particular component, with these suppliers accounting for close to 80 percent of worldwide industry sales. On the retail side of the equation, well-known residential air conditioning units like Carrier and Trane retain a strong foothold in terms of retail sales. However, some newer Asian manufacturers have signaled an interest in more aggressively pursuing the lucrative international market. PowerAir Inc. is presently considering a $300 million dollar investment in a new plant, which will create a component that is much quieter, more efficient, and is likely to satisfy future regulatory standards. While the core technology for the new component is very old, PowerAir’s engineering and design skills have allowed them to retain their low cost advantage, even though the component will represent a significant improvement over products currently provided by its competition.

Question 1.

PowerAir Inc. have also asked that you develop an argument as to why PowerAir should hold back and be a second mover with the new technology (ie. not to proceed with the investment, waiting to see if other competitors in the marketplace develop this new technology). Again, provide at least three reasons to PowerAir, arguing that it might be better to wait. Explain your reasoning in full.

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