(Providence, Rhode Island) Fear not the ambiguity that lies in front of you.
Market update for the previous period produced a lot of headache, for me especially. We were too greedy in Market A and did not expected another new entrant to undercut us so much as the was an equilibrium with other firms in thee previous periods. There was also a huge capacity investment by that entrant. Our reasoning behind why the low price and huge capacity investment was to kick us “old timer” out of the market. Was it predatory pricing, I’m not sure but the possibility of them recouping their losses is slim if they continued on like this. As a result, we sold less than half of what we produced. Market A now looks utterly too competitive and not desirable to continue on. Yet, we believed that we should teach the new entrant a lesson, and cut our price significantly for two reasons: sell our inventory at a loss to cut down on inventory costs and to give the new entrant a taste of what it meant to have your market share taken away. Our profit margin is almost nonexistent with this pricing scheme but we believed we could progress with it for now.
In Market B, we sold off everything and learn something new about producing beyond our capacity. Our main revenue generator seems to come from Market B instead of A like initially predicted. At this point, I thought it would be rational for other firms to cut their losses and move into other markets, which are essentially still a duopoly. We are engaging in a price war with two different firms with capacity advantage in each respective market and I’m afraid that we are stretching ourselves a bit too thin. I wanted to expand our capacity in Market B much higher despite the differentiated market and plentiful competitors. It’s a gamble that will raise our profit if it goes well. For now, I’m maintaining the price as previous period because there’s an equilibrium over here as well.
I’m envious of the firms who initially ventured into the other two market because they seemed to be doing quite well with few competitors.