Q1. Wal-Mart and Disney are two examples of firms we covered who earn sustained economic profits. However, both of these firms, while earning ROIC>WACC, do face issues which put downward pressure on their net profitability. For each of these firms, explain the following:
a. In what way is each a "monopolist"? [up to 300 words]
b. In each case, what are their constraints on profitability? [up to 300 words]
Q2. Tiffany chose to vertically integrate, while MS could have forward integrated into PC making but chose to nurture a "disaggregated" PC ecosystem. How would we justify the "correctness" of these different structures? [up to 600 words]
Q3. Long haul trucking companies are entities that develop relationships with customers (those who need goods transported over long distances - 200 or more miles). The trucking companies need access to trucks in order to provide service to their customers. Trucking companies either own a fleet of trucks or they develop relationships with independents - these are typically individuals who own a truck.
When a company manages its own fleet, its main concerns are:
a. Making sure the trucks are in good condition and that care is taken by the driver who uses the truck (s/he doesn't "beat the truck into the ground" with aggressive and careless handling). The longer the life of the truck, the higher is the trucking company's returns.
b. Coordinating the fleet so that capacity is generally available in markets in which trucking services are most demanded - that is, the truck company would like to be in the right place (or places) at the right time. For example, the dispatcher at the trucking company may coordinate routes to provide the most flexibility to serve additional customers who may arise on short notice. The more utilized is the truck, the higher is the company's returns.
Question A: Whose trucks would you believe are in better condition on average - those that belong to the trucking company or those that belong to an independent owner/operator and why? Please give at least one example to illustrate your point(s). [up to 150 words]
Question B: Is coordination easier for companies that own the trucks they deploy or for companies that contract with independent operators and why? [up to 150 words]
Question C: What would be the characteristics or situation of a trucking company that should primarily own its trucks? [up to 150 words]
Questions D: What would be the characteristics of a trucking company that should primarily contract with independent truck owner/operators? [up to 150 words]
NEW INFORMATION: On board trip computers were developed by the early 1990's. A trucking company dispatcher could centrally monitor the speed, location, and many other vital statistics of the truck and the driver (for example, the company could continually conduct breathalyzer tests ) wherever in the country that truck was as long as it was equipped with an on board trip computer.
Question E: After the invention and deployment of on board trip computers, does it make more sense or less sense for the trucking company to own the fleet? [up to 150 words]
Q4. Evaluate the following statement: "Pepsi seeks profitable arenas in which it can sell soft-drinks. Because of the high margins that restaurants are able to charge in selling soft-drinks, buying restaurants represents a good growth opportunity." Consider that restaurants are both a horizontal and vertical merger. What would be an appropriate justification for this merger? [up to 250 words]
Q5. Consider the case of an upstream manufacturing (4 firm concentration ratio of 30%) and a downstream distribution industry (4 firm concentration ratio of 70%). Suppose that in period one, entry into distribution was restricted due to a regulation (no price regulation only entry regulation), but in period two this regulation is repealed and entry into distribution occurs. It is now possible for manufacturers to enter distribution (this was not allowed under the previous regulations). In order for your answer to be easy to follow...assume Acme makes "widgets" and that the retail price is the whole sale price (Acme receives this), plus the charge for distribution (which the retailer pays and then the retailer sets a retail price to cover the cost of distribution and to give the retailers some profit.
A. Given the information above, what do you predict will be the effect of the deregulation on distribution on Acme's profits? [up to 200 words]
B. Would it make sense for ACME self-distribute? Why or why not? [up to 150 words]