From the scenario for Katrina’s Candies, determine the importance of predicting

QUESTION

From the scenario for Katrina’s Candies, determine the importance of predicting the pricing strategies of rival firms in an industry characterized by mutual interdependence. The importance of predicting the pricing strategies of rival firms in an industry characterized by mutual interdependence is very high especially in the case with Katrina’s Candies operating close to an oligopoly. Therefore, an oligopoly is a market structure in which the number of firms is so small that the actions of any one firm are likely to have noticeable impacts on the performance of other firms in the industry (McGuigan, 2013). There are 32 other firms in the industry with Katrina’s Candies making it number 4. Katrina’s Candies needs to be aware of other actions of firms in their industry to not lode any leverage as the competition may change their pricing strategies. If they can focus on the competition and act differently going forward than they did fifteen years ago. Katrina’s should have a bright and successful future. One of the ways of predicting the actions of the other firms in the industry is to formulate hypotheses based on several different theories. The three theories are: kinked demand curve theory, price leadership theory, and game theory. Kinked demand curve theory states that there is a sudden change in pattern causing a kink in the demand curve. The price leadership theory states that a dominant firm sets the prices, and the smaller firms follow. Game theory is defined as a theory of interdependent decision making by the participants in a conflict-of-interest or opportunity-for-collaboration situation (McGuigan, 2013). Katrina’s Candies plans on setting prices and strategies and having the competition react as they want the upper hand. All in all, pricing is important because it can make or break these companies. IF set too high, customers won’t spend money and if too low, the company won’t make money so there has to be an optimal price to charge to have profits being generated while staying ahead of the competition.Examine the common price setting strategies of airlines that use game theory. Predict the potential effects of such pricing strategies on the demand for seats, and conclude the resulting impact on the profitability of the airlines. First of all, game theory is defined as a theory of interdependent decision making by the participants in a conflict-of-interest or opportunity-for-collaboration situation (McGuigan, 2013). Airlines are in the industry to make the most profit possible as there are many different ones to choose from such as: Southwest, Express Jet, U.S. Airways, Delta, and a few more. Therefore, the more booked a flight is, the more the airline will make on a day to day basis. Game theory takes into account that within an airline, there will be more extensive charges if a passenger books a flight at the last minute as opposed to booking early. If the airplane is not at full capacity, ticket prices may fluctuate higher to make up any loss profits due to the lack of passengers. This game theory and price setting strategies is similar during peak holidays and flying season. If it’s during the holiday or peak season to fly, ticket prices will be higher as the demand will be more consistent. When flying out of peak season, ticket prices will be more reasonable but still set at a price that will bring in revenue for the specific airline. Here’s an example: two different consumers are wanting to travel on a Wednesday morning to Phoenix. One airline charges $300/ticket, while the other airline charges $325/ticket. Being the consumer given the economy, they would go with the $300 flight. This is just another way of how game theory works and shows that a dominant firm will exercise their strategy to attract more customer resulting in more revenue.

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