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Tuesday 5 February 2013

Managerial economics case studies: contact us for answers at assignmentssolution@gmail.com



Case – 2 

In the mid 1990s piracy was endemic. So the game industry responded with “budget games” which were
priced at £1.99, making them hardly worth copying. However, this resulted in very thin operating margin
to the publishers.

  Bruce Everises was  in charge of marketing at a new publisher called Codemasters. The created a
brand  with  the  consistent  message  that  these  were  in  fact  full  price  games  and  that  the  only  thing
“budget” about them was a price. This was largely true with the “simulator” series written by the Darling
brothers  and  the  “Dizzy”  series written  by  the Oliver  twins  being  the most  famous.  The  company  sold
immense number of cassettes but it was not at all profitable at such a low price.

  At  that  time  the magazines  added  value  by  covermounting  game  cassettes.  Bruce  designed  a
strategy  and  let  covermount  one  of  their  games  ‘Dizzy’,  on  the  best  selling Sinclair magazine which  in
those days had a circulation of several hundred thousand. After the magazine came out the retail sales of
the game went up as the covermount had introduced the game to new people and they  liked  it so much
that they wanted a “proper’ version of the game and £1.99 was very affordable price.

  Eventually  Bruce  and  his  team  at  Codemasters  decided  to  try  putting  game  price  up  but  were
afraid of  losing  sales. So  they  crafted another  strategy. One month  they announced  that  the new  titles
were going to retail at £2.99  from then on  instead of prevailing £1.99 and simultaneously told the trade
customers  that  the  trade price would  remain  the  same  for  the  first month. As expected, with an aim  to
make  a  huge  amount  of  profit  they  bought  these  titles  like  crazy.  And  the  new,  higher  priced  titles
dominated the top of the charts. Just before the end of the month Bruce again told trade customers that it
was  their  last  chance  at  the  old  trade  price  and  they  filled  their  stocks  again,  so  Codemasters’  titles
dominated the charts even more. After these stocks were sold the traders had no option but  to re order
more  stock  at  the  new  price  as Codemasters’  games  dominated  the  charts,  The  £2.99  price  point was
established and Codemasters  had increased market share on the price increase.

  At this point Bruce implemented the second part of the strategy, he told trade customers that the
retail price on entire back catalogue was going up to the new price point of £2.99 from a certain date, but
these would be available at old trade price for a month after  that date. Naturally the traders saw a second
opportunity  to make a huge profit and placed massive orders  just before  the deadlines. And once again
they had no option but to keep on buying at the new trade price once they had sold this stock. Some of
these older games went on to make more profit  for the company at the higher price than they had at a
lover price.
  Codemasters became a lot more profitable. It had vastly increased sales, but more importantly, its
profit margin had multiplied several folds because cost remained the same. The company was less than a
year  old  at  this  stage  and  this  move  on  price  consolidated  its  position  as  one  of  the  major  British
publishers of video games.

  However there is one important aspect of the whole story that the strategy was perhaps successful
because the prevailing price was very low, but when it is not so it may hit demand elasticity problems.
  It appears  that Game  pricing  is based on what  the market will  bear and  probably prices are not
optimized for profitability.

Questions:-


1.  Do  you  think  games  in  this  case  present  an  exception  to  law  of  demand  or  not?  Give  logic  in  support of your answer.
2.  On basis of  the  case  can  it be  concluded  that demand  for games was not elastic  to price,  rather some other variables were important? If yes then identify the other variables.
3.  The case presents an interesting dimension to consumes’ behaviour. Discuss.
 



Case- 4                     

The Industry  

The automotive sector is one of the core industries of the Indian economy, whose prospect is reflective of
the economic  resilience of  the country. The automobile  industry witnessed a growth of 19.35 percent  in
April-July  2006 when  compared  to  April-July  2005.  As  per  Davos  Report  2006,  Indian  is  largest  three
wheeler  market  in  the  world;  2nd
  largest  two  wheeler  market;  4th
  largest  tractor  market;  5th
  largest
commercial  vehicle  market  and  11th
  largest  passenger  car  market  in  the  world  and  expected  to  the
seventh  largest by 2016. India  is among  few countries that are showing a growth rate of 30 per cent  in
demand  for  passenger  cars. The  industry  currently accounts  for nearly 4%  of  the GNP and 17% of  the
indirect  tax  revenue.  The well  developed  India  automotive  industry  produces  a wide  variety  of  vehicles
including  passenger  cars,  light, medium  and  heavy  commercial  vehicles, multi-utility  vehicles,  scooters,
motorcycles, mopeds,  three wheelers,  tractors etc. Economic  liberalization over  the years made  India as
one of  the prime business destination  for many global automotive players,  including  international giants
like Ford, Toyota, GM and Hyundai have also made their also made their presence with a mark.

  As  per  another  report,  every  commercial  vehicle  manufacture,  create  13.31jobs,  while  every
passenger  car  creates  5.31  jobs,  and  every  two-wheeler  create  0.49  jobs,  in  the  country.  Beside,  the
automobile industry has as output multiplier of 2.24, i.e., for every additional rupee of output in the auto
industry, the overall output of the India economy increases by Rs. 2.24.

  The  India automotive sector has a presence across all vehicle segments and key components.  In
terms of volume, two wheelers dominate the sector, with nearly 80 percent share, followed by passenger
vehicles with  13  percent. At  present,  there  are  12 manufactures  of  passenger  cars,  5 manufactures  of
multi utility vehicles (MUVs), 9 manufactures of commercial vehicles (CVs), 12 of two wheelers and 4 of
three wheelers, besides 5 manufactures of engines.

Table 1 Vehicle Segment-wise Market Share (2005-06)

Items  Percent Share
Commercial Vehicles 
Passenger Vehicles
Two Wheelers
Three Wheelers
Total
3.94
12.83
79.19
4.04
100.00
  Source: Report of Society of Indian Automobile Manufactures (SIAM), 2006.
Although  the  automotive  industry  in  India  is  nearly  six  decades  old,  until  1982,  there were  only  three
manufactures  –  M/s.  Hindustan  Motors,  M/s.  Premier  Automobiles  and  M/s.  Standard  Motors  in  the
motorcar  sector.  In 1982, Maruti Udyog  Ltd.  (MUL)  came up as a government  initiative  in  collaboration
with Suzuki of Japan to establish volume production of contemporary models.

The Company
Maruti  Udyog  Limited  (MUL)  has  become  Suzuki  Motor  Corporation’s  R&D  hub  for  Asia  outside  Japan.
Maruti introduced upgraded versions of the Esteem, Maruti 800 and Omni, completely designed and style
in house. This  followed  the up gradation of WagonR and Zen models, done  in house only a year before.
Maruti  engineer  also  worked  with  their  counterparts  in  Suzuki  Motor  Corporation  in  the  design  and
development of its new model, Swift.

The  company  launched  superior  Bharat  Stage  III  version  of  most  of  its  models,  well  before  the
Government deadline. Maruti also set up a Center for Excellence with a corpus of Rs. 100 million. This was
done  in  collaboration with  suppliers, who  contributed  an  additional  Rs.  50 million.  The  Center  provides
consultancy  and  training  support  to  Maruti’s  Suppliers  and  Sales  Network  to  enable  them  to  achieve
standards in Quality, Cost, Service and Technology Orientation. 

Maruti  has  embarked  upon  this  new  project  in  collaboration  with  SMC  for  the  manufacture  of  diesel
engines,  petrol  engines  and  transmission  assemblies  for  four  wheeled  vehicles.  The  project  is  being
implemented  in  the  existing  Joint  Venture  Company  viz.  Suzuki  Metal  India  Limited  (renamed  Suzuki
Power train India Limited).

Questions:-


1.  Identify  the most  important  factors of production  in case of automobile  industry. Also attempt  to  explain the relative significance of each of these factors.
2.  What more  information would you  like to obtain  in order to draw a production  function  for Maruti  Udyog? Explain with logic.
3.  Automobile industry is a good example of capital augmenting technical progress. Discuss.          
























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