Posted: November 3rd, 2015

MANAGERIAL ECONOMICS

MANAGERIAL ECONOMICS

1. Briefly explain why firms operating with significant excess capacity are more likely to instigate price

wars. (2 points)
2. 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)

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 store

at the corner of Cimarron and Saratoga, about one mile from the new H-E-B plus Store, which was smaller

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)

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