a firm would prefer blockaded entry to deterable entry

Homework for Chapter 6, Adapted End-of-chapter Questions

(10 points
possible)

1. Dunne,
   Roberts, and Samuelson found that industries which have high entry rates, tend
   to also have high exit rates.

   Can you explain this finding?(1 point)

   What does this imply for pricing strategies
   of incumbent firms?(1
   point)

2. .0pt;’=”” list=”” lfo1;=”” level1=”” l0=”” 0pt;=””>“All
   else equal, a firm would prefer blockaded entry to deterable entry.” Explain. (2 points)

   7. How HEB
   behaves toward Walmart is a major determinant of whether it will face entry by
   new competitors. Explain. (2
   points)

   .0pt;’=”” 0pt;=””>9. Suppose HEB considers
   expanding the capacity of its fresh sushi making equipment at its stores at the
   corner of SPID & Staples and at the corner of SPID & Waldron. It can do
   so in one of two ways: (1) HEB can purchase fungible, general-purpose equipment
   that can be resold at close to its original value. Or (2) HEB can invest in
   highly specialized equipment which, once in place, has virtually no salvage value.
   Assuming that each choice results in the same production costs once installed,
   under which choice is the HEB likely to encounter greater likelihood of entry into
   fresh sushi-making by Walmart and other potential competitors, and why? (2
   points)

   .0pt;’=”” 0pt;=””>

   .0pt;’=”” 0pt;=””>14. Consider
   HEB selling two products, Hill Country Fare chicken fajitas and Tyson chicken
   fajitas, which substitute for each other. Suppose that Walmart introduces Great
   Value chicken fajitas, a product that seems to the typical consumer to be identical
   to Hill Country Fare chicken fajitas. Being careful to consider factors that
   may affect the following:

   .0pt;’=””>

   .0pt;’=””>(a) Will a price war be initiated? (1 point)

   .0pt;’=””>

   .0pt;’=””>(b) If so, which firm would be more likely to win the
   price war? (1 point)