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Your final project for this course is to prepare a Competitive Impact Summary to guide decision-making in the face of what your research demonstrates to be existing competitive threats to a publically traded firm of your choice. You are to identify and describe threats on the basis of Porters’ Five Forces, and determine actionable medium-term strategies to maximize net benefit to this firm, of existing lines of production or service.
You are to assume that you have been tasked with preparation of this impact assessment because, in your capacity as a firm-wide product and services manager, you are uniquely aware of the economic circumstances and factors that result in price and output combinations of your firm. Your task is to establish the economic facts which currently affect your firm, clearly demonstrating the economic position of the firm. This document will guide firm mid-level managers in the face of perceived competitive threats, such as current or prospective changes in the price of a major competitor’s good or service. Specifically, you are to determine what economic evidence and theory demonstrates regarding price and output decisions, in the short and medium term, given the threat assessment that you are able to outline using Porter’s Five Forces, and the analytical tools introduced in relationship to each variety of threat.
The project is divided into three milestones, which will be submitted at various points throughout the course to scaffold learning and ensure quality final submissions. Preliminary milestones will be submitted in Modules Three and Six. The final submission will occur in Module Eight.
Milestone 2: Production and Industry Analysis – Due in Module 6
Milestone 3: Final Project Submission – Due in Module 8
In this assignment you will demonstrates your mastery of the following course outcomes:
· Assess supply and demand factors to make business decisions that affect quantity supplied.
· Demonstrate how supply and demand curves will adjust to shifts in managerial decision-making
· Apply pricing theory and concepts of supply to maximize profitability
· Apply input-output analysis to predict economic changes to maximize profits
· Analyze basic game theory to make decisions in business environments
· Perform optimization analysis, risk analysis, estimation and techniques for evaluation to facilitate managerial decision-making
· Examine the legal and ethical issues and challenges involved in competitive decision-making
· Recommend strategies for managerial decision-making
Production and Industry Analysis
1. With reference to the Nike and Adidas which you analyzed in completing Milestone One, describe and analyze describe quantitative and qualitative results from research to assess:
a. Factors influencing input and production costs for your focus Nike,
b. Degree to which your focus firm may be considered horizontally or vertically integrated.
c. Threat of entry.
2. Apply the following measures and other empirical evidence to assess the market structure for the industry in which Nike competes. Present implications of this market structure, for the conduct and performance of these firms, including:
a. Optimal pricing strategies.
b. The four firm concentration ratios.
c. Herfindahl-Hirschman Index (HHI) for this industry.
Your final project for this course is to prepare a Competitive Impact Summary to guide decision-making in the face of what your research demonstrates to be existing competitive threats to a publically
Running Head: MILESTONE 1 FOR FINAL PROJECT SUBMISSION Ebony Ward Economics Milestone 1 For Final Paper NIKE, Inc. September 14, 2019 Excelsior College Nike Inc was founded by Bill Bowerman, who was a track and field coach for the University of Oregon. Nike was introduced on January 25, 1964 as Blue-Ribbon Sports. The athletic organization expanded its business and diversified its products through various brands, and became Nike Inc, on May 30, 1971. The Nike shoe was introduced in 1972. (Britannica, 2019) Nike was publicly traded on December 2, 1980 and is (NKE) on the New York Stock Exchange (NYSE). As of September 13, 2019, the stock price for Nike is $87.32 which has decreased by -0.35 (-0.40%) (NIKE (NKE) Markets Insider, 2019) Nike, is in the business of shoe and apparel, within the business they design, market and sell many products to make playing sports including: basketball, soccer, track, football, hockey, lacrosse and other action sports comfortable. Nike also, is in the business of selling women and men’s training apparel. (Nike Retail Services, Inc. , 2019) Although, Nike Inc. is leading the market for footwear, some of their top competitors include Under Armor, Reebok and Adidas. Each of these athletic organizations are notably successful organizations because of their marketing strategies and how they interact with their customers. (Bhasin, 2019) However, the competitor firm that I chose to research is Adidas, which is known as the second largest sports manufacturer in the world. Adidas AG is an athletic organization like Nike, that sells footwear, apparel and other sporting goods. Adidas was founded by Adolf (Adi) Dassler. This shoe organization began making footwear upon World War I. The brand was famous in 1936 when track star Jesse Owens wore the sneakers at the 1936 Berlin Olympics. Adidas has a design that is three stripes, you will find this logo on all their sneakers and apparel. (Lewis, 2019) This organization, like Nike, designs, markets and sells many products for playing sports including baseball, basketball and soccer, among others to make playing sports and training a comfortable experience. Adidas was publicly traded in 1995 and is currently known as adidas AG (ADDYY) on the New York Stock Exchange. As of September 13, 2019, their stock has decreased and is 151.34 -1.65(-1.08%). (adidas AG (ADDYY), 2019). The focal point for this portion of the project would be the substitute product, which are the athletic shoes sold by both organizations. An example is the Lebron James sneakers priced at $200.00 that Nike sells, opposed to the Trae Young sneakers that Adidas sell that are priced at $180.00. In regard to the law of demand, if the price of the of Lebron James Nike sneaker is increased, therefore, the demand for the product will decrease. (Khan, 2019) However, if the price for the Lebron James shoes are lowered than the demand for the product will increase. In this case the price of the competitor sneaker is more feasibly priced at $180.00. According to the price of related products and demand explanation on Khan Academy, “complements are goods that are consumed together, and substitutes are goods where you can consume one place or the other. “(Khan, 2019) Therefore, people would likely purchase the Trae Young sneaker at the price of $180.00 opposed to the $200.00 Lebron James sneakers depending on their budget. Now, for those loyal Lebron James sneaker lovers, they may just purchase the sneakers priced at $200, because there is only a $20.00 difference in price, in other words the demand for Nike’s brand would not change. The price elasticity of demand measures the sensitivity of the quantity demanded to change prices. On the flip-side, demand is inelastic if it does not respond much to price changes, and elastic if demand changes a lot when the price changes. (Elasticity, 2019) As it relates to Nike, the Lebron James shoe that Nike sells is inelastic because it does not matter what the price is, the demand for the sneakers will likely remain the same. The demand curve illustrates the number of goods customers are willing to purchase at each market price, (Pettinger, 2015) To calculate the cross-price elasticity of demand the formula is: (Agarwal, 2019) (Agarwal, 2019) The demand curve may look something like this if there was significant price change for the Lebron James sneakers and the demand for the product should change: (Agarwal, 2019) (Agarwal, 2019) However, Nike Lebron James shoes, which are inelastic, which is (PED = 0). (Agarwal, 2019) The demand curve would look exactly like this: (Agarwal, 2019) The cross-price elasticity of demand formula is: =%∆ in Quantity Demanded of Good x / %∆ in Price of Good y (Agarwal, 2019) As this relates to Nike, the price changing for Nike. could potentially affect the quantity of demand in adidas. Lastly, the determinants of market demand for Nike besides cost include: The income of the buyer Tastes The income of the buyer, as referenced to earlier would be impacted because usually the Nike shoes are priced at $200.00. However, if for some reason loyal Nike customers are unable to afford the product anymore, the result may be the buyer will result to substitutes like Under Armor, Adidas, Reebok and Puma. The tastes of consumer may be impacted also. An example of this is, if Lebron James was to sign a contract with Adidas the demand would be greater for adidas, especially for those customers that are loyal to the player of the sneaker and not the Nike brand itself. The formula used to fir the five determinants of demand is qD=F (F)= price, income, prices of related goods, tastes and expectation. (Agarwal, 2019) Overall, according to research the economy has not impacted Nike doing business, they continue to grow the business and are still leading the market in footwear and training apparel. (McCalla, 2019) (Kramer, 2019) References adidas AG (ADDYY). (2019, September 14). Retrieved from finance.yahoo.com: https://finance.yahoo.com/quote/ADDYY/ Agarwal, P. (2019, June 5). Price ELasticity of Demand. Retrieved from Intelligenteconomist.com: https://www.intelligenteconomist.com/price-elasticity-of-demand/ Bhasin, H. (2019, January 11). Top 10 Nike competitors. Retrieved from marketing91.com: https://www.marketing91.com/top-10-nike-competitors/ Britannica, T. E. (2019, September 14). Nike, Inc. Retrieved from britannica.com: https://www.britannica.com/topic/Nike-Inc Elasticity. (2019, September 14). Retrieved from asc.ohio-state.edu: 2019 Khan, S. (2019, September 14). Prices of Related Products and Demand. Retrieved from Khanacademy.org: https://www.khanacademy.org/economics-finance-domain/ap-macroeconomics/basic-economics-concepts-macro/demand/v/price-of-related-products-and-demand Kramer, M. (2019, February 20). How Nike Will Keep Sales Surging As Global Economy Slows . Retrieved from investopedia.com: https://www.investopedia.com/nike-s-digital-revival-may-pave-the-way-for-big-sale-growth-in-2019-4587432 Lewis, R. (2019, September 19). Adidas AG . Retrieved from britannica.com: https://www.britannica.com/topic/Adidas-AG McCalla, J. (2019, September 14). How Economics Affects Nike. Retrieved from sites.google.com: https://sites.google.com/a/email.vccs.edu/bus100jmccalla/home/how-economics-affects-nike-1 NIKE (NKE) Markets Insider. (2019, September 13). Retrieved from businessinsider.com: https://markets.businessinsider.com/stocks/nke-stock Nike Retail Services, Inc. . (2019, September 14). Retrieved from vault.com: https://www.vault.com/company-profiles/retail/nike-retail-services-inc Pettinger, T. (2015, October 14). Demand curve formula. Retrieved from economicshelp.org: https://www.economicshelp.org/blog/glossary/demand-curve-formula/