You woke up this morning to a troubling advertisement on TV: A+ Rental Cars' local competitor is
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You woke up this morning to a troubling advertisement on TV: A+ Rental Cars' local competitor is discounting their economy rentals. After doing a little digging, you discover that your competitor has launched an aggressive advertising campaign, reducing the price on their economy line from $32.99 to $24.99. Based on your knowledge of previous pricing practices, you expect a similar price reduction across all vehicle types. In your memo or short business report, include answers to the following questions:
- How will A+ Rental Cars' weekly revenue be affected by the price cut if you maintain the revenue maximizing price that you specified previously? Hint: If you did not include Pcomp in your estimated demand curve, then perhaps you should revisit this decision.
- Should A+ Rental Cars respond to the competition by reducing their price as well, or ignore the actions of the competitor and run the business as usual? If you decide that a price cut is preferred, how deep should the discount be? Can game theory be used to analyze this situation? Explain your reasoning and methodology thoroughly.
- It would be labor intensive to re-analyze your situation every time your competitor changed their prices. Is there a way to develop a formula that would help you quickly pick a price in response to the price setting behavior of your competitor? Be as systematic as possible. A general, concise solution is ideal. Document the process you used to arrive at the "formula".
- The corporate leadership team inquired about the use of a "price match guarantee". This policy would mean A+ Rental Cars will match our competitor's price for a certain vehicle category if their price is lower than ours. Please comment on the viability of the this policy. Is it a good idea? Why or Why not?
- If the price match policy is a good idea, how widely should it be advertised? Explain.
Related Book For
Modern Advanced Accounting In Canada
ISBN: 9781259066481
7th Edition
Authors: Hilton Murray, Herauf Darrell
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