Respond to the required questions, double-spaced, APA format (source citations and reference insertions) essay (Each Question). In each Case Study, you must use at least three (3) references (in text), including the textbook (included below).
Respond to the required questions, double-spaced, APA format (source citations and reference insertions) essay (Each Question). In each Case Study, you must use at least three (3) references (in text), including the textbook (included below). Textbook reference: Smith Jr., Clifford W. Managerial Economics & Organizational Architecture (Irwin Economics) (p. 103). McGraw-Hill Higher Education. Kindle Edition. (This Assignment Box maybe linked to Turnitin.) 200 Words: Case 1: Chapter 6 - “Analyzing Managerial Decisions: United Airlines” The WSJ recently presented data suggesting that United Airlines was not covering its costs on flights from San Francisco to Washington D.C. The article quoted analysts saying that United should discontinue this service. The costs per flight (presented in the article) included the costs of fuel, pilots, flight attendants, food, etc. used on the flight. They also included a share of the costs associated with running the hubs at the two airports, such as ticket agents, building charges, baggage handlers, gate charges, etc. Suppose that the revenue collected on the typical United flight from San Francisco to Washington does not cover these costs. 1. Does this fact imply that United should discontinue these flights? Explain. 300 Words: Case 2: Chapter 7 - “Analyzing Managerial Decisions: iTunes Music Pricing” Consumers have been able to purchase digital music and audiobooks over the Internet through Apple Computer’s iTunes Music Store (Music Store) since April 2003. The Music Store is integrated with Apple’s iTunes Software, which allows users to manage their digital music libraries and to interface with their iPods, iPhones, iPads, and other products. Apple’s stock price increased from $1 per share in April 2003 to over $95 per share in July 2014 (adjusted for stock splits). This 95-fold price increase compares to Microsoft’s stock, which increased from about $18 per share to $42 per share over the same period. Apple’s strong performance was fueled in part by the growth in its digital music business. In August 2005, Apple’s market shares for downloaded music and MP3 players in the United States were approximately 75 percent and 80 percent respectively. In 2013, Apple’s estimated market share for downloaded music was 63 percent. Amazon, which introduced its online music store in 2008, was second with a market share of 22 percent. From the inception of the Music Store until 2009, Apple priced all downloaded music at $.99 per song. About $.70 per song was paid to the major record companies that had the rights to the songs. The record companies were initially happy with this arrangement since it provided a way to collect at least some revenue from downloaded music. Prior to the development of iTunes, many consumers downloaded music through services such as Napster, with no royalties paid to the music companies or artists. By August 2005, Music Store sales had become “big business” and two of the four major record companies expressed dissatisfaction with the $.99 price. Sony BMG Music Entertainment and Warner Music favored a more complex pricing scheme that would price songs by popularity. A popular new single, for example, might sell for $1.49, while a “golden oldie” might sell for substantially less than $.99. Executives from these two music companies argued that their revenue stream could be enhanced by flexible pricing. They complained that Apple had an incentive to sell downloaded music at too low a price to promote the sale of iPods. To quote one music company executive, “Mr. Jobs has got two revenue streams: one from our music and one from the sale of his iPods. I’ve got one revenue stream that it would require a medical professional to locate. It’s not pretty.” Not all of the major record companies shared the same view. For example, as of August 2005, the Universal Music Group (a unit of Vivendi Universal—the industry’s biggest company) supported Apple’s desire to maintain the price of $.99 a track. The difference in opinion among the four record companies reflected varying views on whether the rapidly expanding digital market was stable enough to bear a mix of prices— particularly a higher top-end price. Millions of consumers were still trading music free on unauthorized file-swapping networks and an increase in price would increase the incentives to engage in this practice. One music executive noted, “I don’t think it’s time yet. We need to convert a lot more people to the habit of buying music online. I don’t think a way to convert more people is to raise the price.” In 2014, Apple priced most downloaded music at $1.29 per song. Adjusted for inflation, the 2014 price is very close to the 2003 price of 99 cents per song. Apple, however, sold a limited number of songs at 69 cents and 99 cents in 2014. Over the years, Apple has had substantial power in negotiating with the record companies. No music company has tried to force Apple to change its pricing policies by withholding its music. Analysts, however, forecasted that Apple’s leverage over the music companies could fall in the future due to increased competition, for example, from Amazon.com and major wireless companies who were likely to begin offering downloaded music services to cell phone customers. 1. Provide an argument for why a more variable pricing policy might increase the sales revenue from Apple’s Music Store (compared to the flat pricing policy). 2. Why do you think Apple moved from one to three price points in 2009? What types of songs do you think Apple tends to sell at the lower prices? 3. Discuss other potential pricing policies that might increase the revenue from Music Store sales. 4. What are the risks and potential costs of implementing more sophisticated pricing schemes for the downloaded music? 5. Is Apple’s pricing objective to maximize the revenue it receives from the sales of downloaded music? Is this the objective of the major record companies? Explain. (Hint: review the revenue/product data from Apple’s 10-K— available online at www.sec.gov/cgi-bin/srchedgar.) 6. Do you think that Apple’s ability to control the pricing of downloaded music is likely to change in the future? Explain. 200 Words: Case 3: Discussion 1 View the video at the link below and share your thoughts on the economic concepts that you believe are applicable. In your response, provide a rationale on whether a firm has to possess market power in order to raise prices. https://archivesbb.nbclearn.com/portal/site/root/widget/8JehJhSz6wntIMu08VHkNuny3fnXTsQ5s4Rm8DsopIoYk2sGFqv5Q1wGHcavfLGj3CTFNDKc0p51p88PD7TdTe7LIUVfHlz3jEoiuo9pr7uTEXGF3HD_ks22vwEpXSeEPRWizHYPeSH2FgbZljLNbBC1qQUdZSx5Rm3CH7N87rRIkTrnuQzEgw/42019 100 Words: Case 4: Willie: Discussion 2 Market Power Market power is the ability of a single customer or a single corporation to determine market prices. It offers a company the power to set higher prices than it would usually be capable of maintaining and make more money. However, if a company requires competition, it will not be able to locate buyers at a higher price. Quite frequently, market power plays a significant role in antitrust cases where companies such asi; AT&T, Standard Oil, Microsoft, Kodak violated the Sherman Antitrust Act, which outlawed trusts — monopolies and cartels — to increase economic competitiveness. Barriers to Entry Barriers to entry are factors that limit the entry of new firms to a market, even though the existing firms are making economic profits. Establishing the presence of substantial entry barriers is usually necessary to prove that a high market share translates into market power in monopolization or abuse of dominance cases. Many companies have some level of market power. For instance, their market power could be based on location or other benefits of servicing a segment of consumers. Even though the competition framework is a rough measure in many economies, there are some other businesses where companies have significant market authority. The fundamental requirement for the existence of market power is that there are appropriate barriers to entry into the business. Appropriate barriers to entry would be government regulations, location constraints, and start-up costs that prevent competitors from joining the market, restrict the danger of competitors, and offer market power to established businesses. Preconceptions about corporate responses, corporate incentives, and exit costs can all function as barriers to entry (Brickley, Smith, & Zimmerman, 2016). 1 - Comment on this and add on the subject. 100 Words: Case 5: Morgan: Discussion 2 One driving force in the business is price. Firms look to provide product differentiation, competition from the market, quality products and services. Eventually a firm will want to raise prices. This could be out of necessity due to an increase in production cost for example or because the firm has proven success and can benefit from a price increase. A company does not necessarily have to have market power in order to raise prices. A firm has market power if it has very few competitors in its industry or location (Petryni). Because a firm can raise prices if they have market power does not mean they should. The firm should look to stay at a price that is sustainable as well as provide consumers with information on why the price should increase and its value. 1 - Comment on this and add on the subject.