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MN3119 ZA d1

~~MN3119 ZA d0
This paper is not to be removed from the Examination Halls
MN3119 ZA
BSc degrees and Diplomas for Graduates in Economics, Management, Finance and the
Social Sciences, the Diplomas in Economics and Social Sciences and Access Route
Thursday, 02 May 2013 : 10.00am to 1.00pm
Candidates should answer FIVE of the following NINE questions: FOUR from Section A (15
marks each) and ONE from Section B (40 marks). Candidates are strongly advised to divide
their time appropriately.
A calculator may be used when answering questions on this paper and it must comply in all
respects with the specification given with your Admission Notice. The make and type of
machine must be clearly stated on the front cover of the answer book.
© University of London 2013
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Answer four questions from this section.
Two firms, 1 and 2, produce identical products and compete in quantities. Market demand is
Q = 120 - p. Firm 1 has a cost function of C1 = 22q1, firm 2 has a cost function of C2 = 5(q2)2.
Firm 1 sets quantity q1 first, and firm 2 observes q1 and sets q2 in response.
Find the equilibrium prices and profits for both firms.
Would firm 2 be willing to buy a license for the same technology firm 1 uses (assuming firm 1
will continue to use this technology)? How much would it be willing to pay?
How can resale price maintenance (RPM) help solve the problem of investment externalities in case of
two retailers in the same shopping mall?
Consider the advertising campaign for a luxury product. Using this example, explain why advertising
typically has:
Economies of scale.
Economies of scope.
An industry has a C4-ratio of 80%.
What is the minimum Herfindahl-Hirschman index (HHI) for this industry? Show your
What is the maximum HHI for this industry? Show your calculation.
Two firms, X and Y, have to choose a level of quality, high or low, for their product. The value (i.e.
level of profits) of the high-quality market segment is 100, the value of the low-quality segment is 60.
If both firms are in the same segment, they share the market (and profits) equally.
Both firms choose quality levels simultaneously. Find all Nash Equilibria.
Now firm X chooses quality first. Find all subgame perfect Nash equilibria.
Calculate the value of the first-mover advantage or disadvantage.
You are a manager of the (at the moment) only ice-cream parlour in a large shopping mall. Someone
told you about how endogenous sunk costs can help your business. How could you use endogenous
sunk costs to maximise profits in this case?
© University of London 2013
Page 2 of 4
Answer one question from this section.
Netflix, an online-video and DVD rental firm, recently developed ‘House of Cards’, an adaptation of a
BBC mini-series, with big-name actors and a big budget (the first 26 episodes are thought to have cost
more than $100m), to be shown exclusively on Netflix.
Creating original, high-end television shows for subscribers is a new direction for the firm, the main
business of which is renting out and streaming other companies’ content online. Others are following
suit. Amazon, an online shopping mall that also offers a video-streaming service, has commissioned
six television pilots. Hulu, an online-video site, and Yahoo, the internet pioneer, are also making
original programmes.
Vertical integration like the one described above carries a number of risks. Discuss three of
On the other hand, offering content and the delivery platform can also create higher value than
the two operated separately. Give one reason (the most convincing one in your opinion) for this
and explain in detail.
Watching paid online video is said to have huge market potential. How exactly would you define
the relevant market, what are the closest substitutes and how would you try to find out the degree
to which other products or services are substitutes? Name and explain one technique (the most
suitable one in your opinion).
Blackberry (formerly RIM) has recently released its new mobile operating system Blackberry 10 in a
market in which Apple’s proprietary iOS and Android’s open standard jointly hold more than 90% of
market share. Analysts see this as the last chance Blackberry has to survive in the smartphone market.
Discuss the two most important entry barriers in the mobile operating systems market.
What are the generic strategies for entering such markets? Which one should Blackberry choose
and why?
Apple’s iOS and Android are said to be in a standards battle. Which strategies should Apple
choose to compete with Android? How will this change if Blackberry 10, which is a proprietary
system too, is successful in entering the market?
© University of London 2013
Page 3 of 4
Research and development (R&D) and innovation in general depends strongly on the prevailing
intellectual property (IP) and patent system in a country. In the US, IP and patent law and its
enforcement is considered fairly strict, while Chinese IP and patent enforcement is considered less
In the US, R&D firms’ strategies are often thought of as strategic complements, while in China
they are often considered strategic substitutes. Explain what this means and give reasons for it.
Observers have recently stated that ‘the (sometimes illegal) cartels of Chinese firms pooling
their R&D efforts are a direct response to the weak enforcement of intellectual property and
patent laws in their home country.’ Do you agree that R&D cartels are a response to weak IP
laws? Why or why not?
Consider a mature economy like the US and an emerging one like China. From the point of view
of an established player in the industry with a market share of 75% of current consumers in each
market, in which market, the US or China, would you be more likely to introduce a radical
product innovation? Why?
© University of London 2013
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