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Figure 12.1 Assume That Lexus (L)is the First Automobile Company to Produce

Question 82

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Figure 12.1 Assume that Lexus (L)is the first automobile company to produce a luxury class hybrid automobile and is the only such company for the past four years. BMW is now considering producing its own luxury hybrid automobile and Lexus must decide whether or not to lower the price of its luxury hybrid to counter BMW's entry into the luxury hybrid niche. -Refer to Figure 12.1.If Lexus lowers its price, will this deter BMW from entering the market?

Figure 12.1
Figure 12.1 Assume that Lexus (L) is the first automobile company to produce a luxury class hybrid automobile and is the only such company for the past four years. BMW is now considering producing its own luxury hybrid automobile and Lexus must decide whether or not to lower the price of its luxury hybrid to counter BMW's entry into the luxury hybrid niche. -Refer to Figure 12.1.If Lexus lowers its price, will this deter BMW from entering the market? A) Yes, because BMW stands to lose $100 million if it competes with Lexus. B) Yes, because BMW will make a smaller profit than Lexus if it chooses to compete. C) No, because BMW will still make a profit of $120 if it competes with Lexus. D) No, because BMW will be able to break Lexus' first mover advantage.
Assume that Lexus (L) is the first automobile company to produce a luxury class hybrid automobile and is the only such company for the past four years. BMW is now considering producing its own luxury hybrid automobile and Lexus must decide whether or not to lower the price of its luxury hybrid to counter BMW's entry into the luxury hybrid niche.
-Refer to Figure 12.1.If Lexus lowers its price, will this deter BMW from entering the market?


A) Yes, because BMW stands to lose $100 million if it competes with Lexus.
B) Yes, because BMW will make a smaller profit than Lexus if it chooses to compete.
C) No, because BMW will still make a profit of $120 if it competes with Lexus.
D) No, because BMW will be able to break Lexus' first mover advantage.

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