Business strategies have been a hot topic for years. How to make the most profit and how to keep your rates very competitive are two questions that are asked very often. I have had the privilege to play through a simulation that gives you the opportunity to play through some of the many decisions a CEO goes through today and learn from those decisions, as his/her company grows.

This simulation is about a computer company called, Quasar. In 2003 this company has released their new computer product, an all-optical notebook computer branded ‘Neutron’. In the simulation you go through 4 different competitive stages, monopoly, oligopoly, monopolistic competition, and perfect competition, as the CEO of Quasar and make some very important business strategy decisions, along with the help of a board.

In the first scenario, of monopoly stage, you are asked to determine how much you would like to sell the product for. You are given a graph, a board, and a table that reflects your total cost, revenue, and profit as you toggle the amount you want to charge, to help you make this decision. In my instance I chose to charge $2,650 for the Neutron. My results came up showing that a few months later, I was on a plane and a co-passenger was using a Quasar Neutron so I made a wise decision charging that amount. The next scenario discusses how much money to advertise with and again you have the same items to help make the decision.

In this scenario, you have two board members, Robert and Jane, with conflicting views of how to handle the money for advertising. It is your job to review both of their inputs and observe what impact each would have on your company and then to decide which option is more favorable to your company and decide at what price to sell the notebook. The budget for 2004 for advertising was $400 million. Robert recommends that you increase advertising to $500 or $600 million while Jane says you should cut advertising to $100 or $200 million because you have a monopoly so why splurge on extra advertising when you could put some of the money towards your bottom line. I decided to raise the advertising to $500 million. Even through Quasar does have a monopoly right now, chances are that a company is going to come behind Quasar and release a notebook very similar to the Neutron, so knowing that I believe Quasar should spend money to advertise now that way Quasar has the consumer’s trust and a good reputation. I also decided to keep the price of the notebook the same. My result ended up with Quasar doing well their second year but the production process is not optimal and there is room for improvement, which brings you into the third scenario.

In this scenario you have to select the best proposal to reduce Quasar’s production costs and then set the price for the Neutron. You also have David and Jane this time with conflicting views of how to handle this process so again you have to review each view and decide what the best course of action is to take. David wants to upgrade the whole production process while Jane only wants to fix specific problems because, again, we have a monopoly so why spend a lot of money. I decided to upgrade the whole process because Quasar won’t be a monopoly forever and I was then able to lower the price of the notebook because Quasar saved money from upgrading. I set the price to $2,300. The results I received said that I had made the right decision to upgrade but the price I set did not result in optimum profits. That is the end of the monopoly stage. Next is the oligopoly stage in which a company, Orion, now has a similar notebook for sale.

In this stage your job is to decide on how much to charge for your notebook as well as have a competitive price. The simulation provides you a payoff matrix and how much Orion charged last month to help you. You have to use this information and predict how much Orion would charge for this month and how much you will charge in response. Before I began this stage, I wanted to do some research and get some more information and background. In AMBA 607 Strategy A Note on Industry Structure, I came upon this “In some oligopolies, incumbents often engage in a high level of competitive, unilateral actions forcing other industry members to respond in kind. This generally hurts the interests of the industry as well as their own.” The example they give is the airline industry which, Harvard professor, Michael E. Porter gives as well. One airline will lower a fare for a sector so other airlines will lower their fare as well which provides a downward cycle. Knowing this I wanted to be very careful to avoid this and set a price for the Neutron that wouldn’t fluctuate. I chose $1750 and went through three months. My results ended up being that I was able to stabilize the market but I didn’t optimize profits.