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1. When McDonald's Corp. reduced the price of its Big Mac by 75 percent if customers also purchased french fries and a soft drink, The Wall Street Journal reported that the company was hoping the novel promotion would revive its U. S. sales growth. It didn't. Within two weeks sales had fallen. Using your knowledge of game theory, what do you think disrupted McDonald's plans?

3. Dell Computer Corp., the world’s largest personal-computer maker, is keenly aware of everything its rival PC manufacturers decide to do. Explain why Dell usually reacts more quickly and more substantially to pricing, product design, and advertising decisions made by Hewlett-Packard and Gateway than when these same types of decisions are made by Apple Computer.

8. When he retired as CEO of American Airlines, a position he held for 18 years, Robert Crandall was described in a Newsweek article as “one tough (expletive”. Other nicknames Crandall garnered during his career included Fang, Bob, the Butcher and Wretched Robert. Newsweek noted that Crandall’s “salty language and brass knuckle, in-your-face” style of dealing with employees and rival airlines is now out style in the executive suites of U.S. corporations. In strategic decision-making situations, why might Crandall’s style of management have been advantageous to American Airlines?

11. In 1999 Mercedes-Benz USA adopted a new pricing policy, which it called NFP (negotiation-free process), that sought to eliminate price negotiations between customers and new-car dealers. An article in The New York Times (August 29, 1999) reported that a New Jersey Mercedes dealer who had his franchise revoked is suing Mercedes, claiming that he was fired for refusing to go along with Mercedes’ no-haggling pricing policy. The New Jersey dealer said he thought the NFP policy was illegal Why might Mercedes’ NFP policy be illegal? Can you offer another reason why the New Jersey dealer might not have wished to follow a no-haggling policy?

Chapter 14

1. STIHL, Inc., manufactures gasoline-powered chain saws for professional, commercial, farm, and consumer markets. To better serve their customers, STIHL offers its chain saws in four different quality lines and associated price ranges: occasional use, midrange, professional, and arborist. Under what circumstances could offering multiple qualities of a product be price discrimination? What form of price discrimination might this represent ----first, second, or third-degree price discrimination? Explain why this practice could increase profit at STIHL.

3. In the mid-1990's, long before September 11, 2001, airlines began requiring photo identification to check baggage and board flights, claiming their fervent commitment to secure and safe air travel. Do you think the airlines implemented this policy because they could for see the coming terrorist threat to aviation? What might be a more plausible explanation for the airlines' early commitment to photo identification? 

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