As  you  are  aware,  Google  has  been  entering  select  markets  with  its  Google  Fiber  service  that  competes  directly  with  our  high-speed  data  and  video  services.  Even  though  its  market  penetration  has  been  moderate, Google has deep pockets and excellent brand awareness. As a result, we are paying close attention to markets that it is entering.Within  the  last  year,  we  completed  our  own  fiber  upgrade  in  the  area  at  a  cost  of  a  little  over  $550  million.  We  are  able  to  provide  our  high-speed data and video, and have a large number of bundled customers for  our  products.  Unfortunately,  many  of  them  have  been  with  us  for  a  while  and  are  no  longer  under  any  contract  to  remain  with  us.  With  Google’s entry, (along with existing competition) we may need to reduce our  prices.  The  Austin  service  area  for  our  services  includes  340,000  households.  Currently,  in  neighborhoods  where  Google  competes,  we  provide bundled services that average $120 per household per month.In  addition  to  monthly  costs  associated  with  the  $550  million  (which  is  being amortized over 15 years at 6.0 percent), agreements with program providers  stipulate  that  we  pay  them  $41.50  per  subscriber  per  month.  In addition, we have maintenance, service, and billing costs of $9.20 per subscriber.I am concerned that increased competition will lead to a price war, and that prices may get to unprofitable levels. If things turn really bad, we may need an exit strategy from this market. How low should we be willing to go with our prices before it makes sense to exit the Austin market?"

Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...
icon
Related questions
icon
Concept explainers
Topic Video
Question

As  you  are  aware,  Google  has  been  entering  select  markets  with  its  Google  Fiber  service  that  competes  directly  with  our  high-speed  data  and  video  services.  Even  though  its  market  penetration  has  been  moderate, Google has deep pockets and excellent brand awareness. As a result, we are paying close attention to markets that it is entering.Within  the  last  year,  we  completed  our  own  fiber  upgrade  in  the  area  at  a  cost  of  a  little  over  $550  million.  We  are  able  to  provide  our  high-speed data and video, and have a large number of bundled customers for  our  products.  Unfortunately,  many  of  them  have  been  with  us  for  a  while  and  are  no  longer  under  any  contract  to  remain  with  us.  With  Google’s entry, (along with existing competition) we may need to reduce our  prices.  The  Austin  service  area  for  our  services  includes  340,000  households.  Currently,  in  neighborhoods  where  Google  competes,  we  provide bundled services that average $120 per household per month.In  addition  to  monthly  costs  associated  with  the  $550  million  (which  is  being amortized over 15 years at 6.0 percent), agreements with program providers  stipulate  that  we  pay  them  $41.50  per  subscriber  per  month.  In addition, we have maintenance, service, and billing costs of $9.20 per subscriber.I am concerned that increased competition will lead to a price war, and that prices may get to unprofitable levels. If things turn really bad, we may need an exit strategy from this market. How low should we be willing to go with our prices before it makes sense to exit the Austin market?"

Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 3 steps

Blurred answer
Knowledge Booster
Inventory management
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, operations-management and related others by exploring similar questions and additional content below.
Similar questions
Recommended textbooks for you
Practical Management Science
Practical Management Science
Operations Management
ISBN:
9781337406659
Author:
WINSTON, Wayne L.
Publisher:
Cengage,
Operations Management
Operations Management
Operations Management
ISBN:
9781259667473
Author:
William J Stevenson
Publisher:
McGraw-Hill Education
Operations and Supply Chain Management (Mcgraw-hi…
Operations and Supply Chain Management (Mcgraw-hi…
Operations Management
ISBN:
9781259666100
Author:
F. Robert Jacobs, Richard B Chase
Publisher:
McGraw-Hill Education
Business in Action
Business in Action
Operations Management
ISBN:
9780135198100
Author:
BOVEE
Publisher:
PEARSON CO
Purchasing and Supply Chain Management
Purchasing and Supply Chain Management
Operations Management
ISBN:
9781285869681
Author:
Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. Patterson
Publisher:
Cengage Learning
Production and Operations Analysis, Seventh Editi…
Production and Operations Analysis, Seventh Editi…
Operations Management
ISBN:
9781478623069
Author:
Steven Nahmias, Tava Lennon Olsen
Publisher:
Waveland Press, Inc.