m5l5 - UGBA 10 Module 5 Lecture 5 May 2 2008 International...

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Lecture 5: May 2, Lecture 5: May 2, 2008 2008 International International Business Business UGBA 10 Module 5
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Recall the model’s Recall the model’s assumptions: assumptions: firms produce a firms produce a homogeneous product homogeneous product firms have unlimited firms have unlimited capacity capacity customers know prices. customers know prices. customers face no customers face no switching costs switching costs firms have the same, firms have the same, constant unit cost constant unit cost firms play once firms play once (alternatively, myopically) (alternatively, myopically) First: Last First: Last Point on Point on Avoiding the Avoiding the Bertrand Bertrand Trap Trap
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A Repeated Game Column Player Left Right Row Player Up 0 0 -1 4 Down 4 -1 3 3
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Rules Repeat the game until a one or two thrown.
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Repeated Play Important Insight not just valuable for avoiding Bertrand trap. Applies whenever you have repeated interactions.
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Conclusions You can avoid the Bertrand Trap if You can achieve a cost advantage (Method 1) You can limit capacity (Method 2) You can raise search costs (Method 3) You can raise switching costs (Method 4) You can differentiate your product (Method 5) You don’t play myopically (Method 6)
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Module Overview Strategy International Business Why trade? Foreign currency exchange Managing currency risk Doing business abroad Entrepreneurship
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Understanding Comparative Advantage Rose is a brilliant lawyer, the best in town Rose is also the fastest typist in town.
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