(Orlando, Florida) Fiery explosion of spectacular performance
I am currently enrolled in a Competitive Strategy Game by Haas Business School. It was created by Severin Borenstein, my professor’s thesis advisor. He was very enthusiastic about this game, and I can’t see why not. The game mimics real situation where firms only know about their production cost but not of other firms. This really test the judgment because depending on the decisions made, the initial investment could turn into profits or losses.
I’m recording the team’s thought plan over here. So that, I could look back here in retrospective and figure out what had gone wrong. Of course, the main motive of the game is to maximize profit and that is just what I intend to achieve.
In the first week, we could only invest in one market and decide on the production capacity. Because the game is all about uncertainty and analysis, my team spent roughly 12 hours creating spreadsheets and the basic intuition to succeed in the game. We derived rough demand curves and estimated future calculations from these curves. We arrived towards two markets, both almost equally appealing. Let’s call thee first market, Market A. For our firm, we have a good lower marginal cost but somewhat higher capacity cost and entry cost. You can think of this as Mexico. The other market, let’s call it Market B, we have very low marginal cost. Think of the production facility akin to China. We are very sure that we have the lowest marginal cost among the competitors, but this is a differentiated goods market, so other firms would still control some market share despite the price difference. The net present value was also the highest in this market, if we could command a monopoly in the market. Here’s where the team divided, some wanted to invest in Market A because it’s easier to fight on cost in that market. But I wanted in go to Market B because of the high profit prospect. We came to the conclusion of investing in Market A, but just with half of our investment capital. That way, we still have some cash to go to other market if needed.
The result of all firms’ decisions came in. There’s a duopoly in Market A, including us but both teams are playing it safe because the production capacity is somewhat lower than the optimum capacity. Surprisingly, Market B was crowded with firms, probably coming to the same conclusion that Market B is a good investment. There are little activities in other markets, one with no firms entering it and the other with a monopoly. Because of the duopoly, I recommended that we charge a very high price for our goods because there’s bound to be a shortage in the market. We charge at almost 10x our marginal cost for the largest recoupment we can get. Our calculations was that we could fulfill almost every demand in the market despite even if the competitor undercut us. We also foray in the hotly crowded Market B, for despite the competition, we still have the comparative advantage on our side. But still, the investment is small just to test the water.