The firm ALFA is known around the world for its high-quality watches, and they s

Question

The firm ALFA is known around the world for its high-quality watches, and they sell for a unit price of $9,000. However, ALFA are seeing the emergence of Asian ALFA-copy-products in their market as an increasing problem. The copy-product-makers are getting more skilled, and consumers, who are aware of the existence of the copy-products in the deal, can by buying a watch not actually see the difference an ALFA-watch and an ALFA-copy-product. The latter product, however, is of much lower quality than the real thing.

In ALFA’s analysis-department they have investigated the consumers willingness to pay for ALFA-watches, which is found to be $10,000. They also have clear knowledge of the willingness to pay for a copy-product, which is $1,200. A representative sample shows that the proportion of copy-product watches in the market for ALFA-watches is 4%. Suppose that consumers are risk neutral.

a) What will the consumers’ willingness to pay be for an ALFA-watch under these conditions?

Based on the analysis, the management at ALFA are not particularly worried about copy-watches right now.

b) Explain how the management might justify that the cope-watches do not constitute a major problem.

In the analysis-department they are more worried. The problem of copy-products will undoubtedly be increasing. Call the proportion of real ALFA-watches q and ALFA-copy-watches for 1 - q.

c) Express using q, what a consumer will pay for a watch in the market for ALFA-watches and calculate the share that the copy-products must have of the market before ALFA find it necessary to review its pricing of their watches.

Explanation / Answer

if consumers are risk neutral, they are willing to pay $9000 at the existing price. And only 4% of the revenue will be lost that is $ 360.

4% is not at all a matter for a big branded company.

Even the situation if doubles it won't be an issue and no need to reduce the price as well for just that simple issue and no need to worry but legal action may be initiated for the same.

If thproperortion says as equaltion (9000*q + 1200*(1-q) )/q is the price that consumer be willing to pay.

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.