Welcome on board to Cold Brothers (CB). As you know we supply restaurants in the Midwest with ice-making machines. We are currently competing in a Cournot duopoly setting as we only have one serious rival: Frozen Sisters (FS). Unfortunately our products are viewed as very similar by the customer base in our relevant market, and therefore, we are both facing the following inverse monthly market demand curve: P = 300 - Q.
However, we are out-competing our rival in terms of costs. Our accounting department has informed me that our monthly costs are roughly CCB(QCB) = 500 + 4QCB, while our competitor's costs are estimated to be twice as much in both fixed costs and marginal costs: CFS(QFS) = 1,000 + 8QFS.
Since we are enjoying a nice cost advantage we are thinking about making an investment with our suppliers to bring our product to the market before our rival (as we are currently simultaneously supplying the market). The speedy delivery will cost us $1,000 per month, and I would like you to let me know if you think the investment is worth it.
Solution Preview :
To set the price according to the method of perceived value it is necessary to conduct a quantitative study of the finished product (with the final characteristics, packaging, size, etc.) as accurately as possible and to create a situation of committing a real purchase.