12. Briefly explain why firms operating with significant excess capacity are more likely to...

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12. Briefly explain why firms operating with significant excess capacity are more likely to instigate price wars. (2 points) 14 . It is often argued that price wars may be more likely to occur during...

12. Briefly explain why firms operating with significant excess capacity are more likely to instigate price wars.
(2 points)

14. It is often argued that price wars may be more likely to occur during low-demand periods than high-demand periods.

a.
What factors that might support this implication?
(1 point)

b.
Might some other factors reverse this implication?
(1 point)

15. Why does Sutton draw a distinction between endogenous sunk costs, such as advertising, and other sunk costs, such as capital investments?
(2 points)

Background for Questions A and B:
Walmart publicly announced in 2009 that it would build a new
Walmart Super Center
near the corner of Staples and Lipes in Corpus Christi – its first venture into the fast growing, high income, south side of the city. Very soon after that announcement, the land that Walmart was seeking to build on was sold to a firm that would not allow Walmart to build. It later became public knowledge that the H-E-B grocery store firm had purchased that land, and that H-E-B was planning to build a new
H-E-B
plus
Store
less than ½ mile away, at the corner of Staples and Saratoga. Walmart – with no announcement - later built a smaller store at the corner of Cimarron and Saratoga, about one mile from the new
H-E-B
plus
Store,
because local environmental issues/ordinances did not allow for a vehicle maintenance & repair department.

A.
As you are answering the questions below, recall that
burning all but one of his ships made a useful, powerful -
strong
- strategic commitment for Cortes in Mexico.

a. Does this move of HEB appear to be a strong strategic commitment? Explain. (2 points)

b. Does the move of Walmart appear to be a strong strategic move? Explain. (2 points)

B. Explain:

(1) The direct effect of HEB’s move. (1 point)

(2) The strategic effect of HEB’s move. (1 point)

besankoch07-tagged-bezebeod.pdf econ-5315ch7classnotes-tagged-vxqcxhok.pdf

Answered 1 days AfterFeb 14, 2022

Bidusha · Accepted Answer

ECON 5315, CH 7		4
ECON 5315, CH 7
Table of Contents
Answer 12	3
Answer 14 A	3
Answer 14 B	3
Answer 15	4
Solution A:	4
Solution B:	4
References	6
Answer 12
Firms operating with significant excess capacity are more likely to instigate price wars because price war situation generally occurs during low demands period than high demand period. Excess capacity is defined as a demand for a product that is less than the amount that the business capacity could supply. 
Excess Capacity = Potential Output - Actual Output 
It is mostly applicable in manufacturing industries. Price wars generally increase market share by increasing the quantity sold. If the firm is operating with near capacity. It would not be able to increase the quantity sold. Therefore, if firms want to initiate or instigate price wars, they have to decrease the price of the product, therefore the firm is not able to produce more because it cannot produce more, which in turn leads to lower prices, less revenue,

12. Briefly explain why firms operating with significant excess capacity are more likely to instigate price wars. (2 points) 14 . It is often argued that price wars may be more likely to occur during...

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