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Discussion Starter #1
zerepjd

Hi everybody. I'm a long, long-time reader, first-time poster. I'm doing a report on competitive entry for one of my ECON classes up here at WWU. I'm trying to predict some of the pricing games that Subaru and Mitsubishi will play with their STi/EVO in the U.S. by seeing what they did in the U.K. when they released them there. I'm having problems finding any info about their history in England. Any ideas of where I can get a better grasp of what happened over there, like pricing, announcements, adding/subtracting features? Please let me know.
TIA
 

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Detroit will be the official release

Sorry, I don't have any info on the UK introductions of the products, but it sounds like an interesting project.

How are you planning to specify the model? If I had to predict how things will play out intuitively, I'd imagine two possible outcomes:

1) separating equilibrium where one adds extra high-performance features and charges a higher price; or 2) equilibrium where both compete for the same customer group, but the parties wait on announcing features & pricing in an attempt to be the second mover.

Personally, given the fact that there's a lag in purchasing parts, engineering, etc., I'd imagine that the features list for both the Evo and STi is already fixed (give or take a few peripheral options) and that the parties are simply waiting to set price.

If you're the first mover and set your price at a reasonable competitive level (or too high), the other can undercut your price and capture a lot of the market (assuming that later price cuts are considered to be a bad signal by the market and deter sales partially offsetting the price cut). If you're the first mover and set your price too low, hurting your profit margins, the second mover enters with similarly low margins and everybody loses. I doubt there will be a bidding war, simply because cutting price can send a signal to consumers that your product isn't selling well and, therefore, must be somehow inferior.

Now, if you assume that neither Mitsu nor Subaru has perfect information about consumers' demand functions, all hell breaks loose and they expend resources bluffing and gathering information on consumer preferences and demand on Internet message boards ... did I mention that I won't pay more than $30K for a base STi, and that I really dislike the Prodrive wing? :)

Happy modeling! </econ geek>
 

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Discussion Starter #3
Thanks for the reply. You seem to be on exactly the same track that I'm on. I decided that quantity is more-or-less fixed because the firms are pretty small. While they have to stay with the original price, it can be adjusted through interest rates and cash-back incentives. I'm using the #2 idea of yours. In the grand scheme of cars, for the purposes of my model, the cars are identical. A modified Bertrand duopoly model is what I'm using for the economics part. There's always the first-mover advantage of getting to set quantity at the monopoly level (Cournot) but I don't think Mitsubishi (who seems to be more eager to enter) is going to have the guts to do that, at least until Subaru hints at what they're doing. In my model. the ending is a typical Nash equilibrium, where they lower prices until neither wants to lower anymore. I'm just trying to see if anything like that happened in U.K., or if my prediction isn't even close. I'm thinking about posting my small essay on here, so fellow econ geeks can help me with the big one.
 

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One thing to remember to is the UK can only be used as a historical sample, but obviously not indicative of what will happen in the states. This is for many factors, but the simplest boils down to that we are two different cultures with many differing belief/opinion systems. I suppose the data you collect with be used mainly as a theory..correct?
 

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Yeah, there are many different cars in the UK, European cars (S4) are much cheaper there, and demand may not be the same. Since I don't know the demand or marginal cost, or anything numerical for that matter, I'm not going to come out with any hard numbers for anything, it'll be purely theory. My paper is about them entering the same market, and the UK seems like the most obvious place to go to see what they've done before.

Thanks to both of you guys for your advice. I have the big paper due in a week or two, so I'd still like any suggestions or showings of interest.
 
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I recommend posting your questions on the following UK BBoard:
http://www.scoobycity.co.uk/phpBB2/index.php. There are others, but this one should be a good start.

I think they will be able to help you with your research better than we can. After you have gathered your data and you want a group to bounce it off, come visit us. We will be glad to read and respond to your price theories.
 

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Discussion Starter #7
Thanks for that link. That was just the sort of thing I was looking for. I'll keep you guys in mind for showing my final draft. Keep in mind, it may be a little technical, but if you just ignore the stuff you haven't heard of before, you'll hopefully be able to understand the outcome.
 
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