Pushing the envelope
1. Suppose this game was played for a single round only (no repetition). What outcome would you expect and why? (a complete answer includes predictions about bids, allocations, and response to crisis and uses the competitive analysis framework we learned).
Suppose that Suplier1 (S1) and Supplier2 (S2) know Buyer’s value and Buyer knows S1’s and S2’s cost.
S1 and S2 will submit price at 20$ because they know that Buyer’s value which is 30$. At this price, all three parties will get profit at 10$ per unit. To get the maximum profit, ...view middle of the document...
2. Explain how (or whether) your answer to question 1 would change for playing 10
The response to the crisis of S1 and S2 will be changed if the crisis occur. This is because they have to tradeoff between getting maximum profit which will destroyits reliability and getting more allocated amount for the next round which makes low profit but provides high reliability in the long run. Thus, S1 and S2 should fix the crisis.If they don’t want to fix the crisis, they have to make sure that they give a lot lower price than its rival.
3. How should the government manage the contract for development of F-100 Jet Engine?
Pratt denied to be responsible to high rate of stall stagnations problem. Pratt claims that there was no contractual obligation to eliminate stall stagnations at its own expense which means Pratt don’t need to solve these problems. Pratt’s contract is fixed-price incentive arrangement with successive cost, profit and price targets which allowed successive targets negotiation. The government should use fixed-price
incentive contract with firm price to prevent unstructured and unfettered contract. Moreover, the government should provide clear statement which enforce contractor to resolve the consequent problems from its design, workmanship and materials at its own expense.