Assignment:
Case study-Holland sweetner versus monsanto
Aspartame is a low-calorie sweetner marketed by Monsanto under the name of NutraSweet. It was a major impetus to the rapid growth of Diet Coke and Diet Pepsiduring the 1980s and 1990s. A scientist at the G. D. Serle & Co. first discovered aspartame in 1965; Serle received a patent for the product in 1970. US regulators did not approve its use in soft drinks until 1983. In 1985, Monsanto acquired Serle?and with it a monopoly on aspartame. Monsanto?s patents expired in 1987 and 1992 in Europe and the United States, respectively.
In 1986, Holland Sweetner was formed through a joint venture of Tosoh Corporation and Dutch State Mines. Its sole purpose was to challenge Monsanto in the aspartame market. It began by building a plant in the Netherlands to compete in the European market. The big prize,? however, was the US soft-drink market, which was to open up at the end of 1992.
Initially, Holland Sweetner was quite optimistic about capturing a large share of the US market. To quote their vice present of marketing and sales in referring to Coke and Pepsi, ?every manufacturer likes to have at least two sources of supply.? To Holland Sweetner?s surprise, they never became a big player in the US market. In 1992, just before Monsanto?s patent expired, Coke and Pepsi signed long-term contracts with Monsanto for the continued supply of NutraSweet. The big winners in this contract negotiation were Coke and Pepsi who realized about $200 million a year in savings. Monsanto remained the major supplier to these companies, while Holland Sweetner was ?left pretty much out in the cold.? Envision a pricing problem between Monsanto and Holland Sweetner in 1992 that
led to the Monsanto contract. Assume (1) the cost to Holland Sweetner of entering the US market, $25 million, has been incurred; (2) Monsanto and Holland Sweetner simultaneously choose to quote either a high or low price to Pepsi and Coke for aspartame; (3) if both Monsanto and Holland Sweetner quote the same price, Pepsi and Coke contract with Monsanto because customers are familiar with theNutraSweet label?
Holland Sweetner loses its initial investment; (4) if both firms submit a high price, Monsanto nets $300 million; (5) if both firms submit a low price, Monsanto nets $100 million; (6) if Monsanto prices high and Holland Sweetner prices low, Holland Sweetner nets $100 million (after the initial investment) and Monsanto nets $0.
Question 1
Which of the following stragetic-form payoff matrixes is the correct one for this case study? Refer to the attachment
a.Answer a above.
b.Answer b above.
c.Answer c above.
d.Answer d above.
e.Answer e above.
Question 2
The Nash equilibrium occurs when
a.Both Monsanto and Holland bid low
b.When both Holland and Monsanto bid high
c.When Holland bids low and Monsanto bids high
d.There is no Nash equilibrium.
e.When Monsanto bids low and Holland bids high
Question 3
Now assume that the interaction is sequential where Holland Sweetener chooses to enter (it reveals its bid first or at Node 1), what pricing problem does it face in the second stage?
a.Holland has to force Monsanto to bid high.
b.It does not face any pricing problem in the second stage.
c.Because Monsanto wins the entire contract if it matches Hollands bid, once Monsanto knows what Holland is bidding, it can easily match the bid, win the contract, and keep Holland out of the market.
d.Because Monsanto wins the entire contract if it matches Hollands bid, Holland has to wait until it sees if Monsanto continues to bid high before it enters the market.
e.Holland will only find out what Monsanto's bid will be after it submits its bid.
Question 4
Why do you think Holland Sweetener entered? Was it just dumb or were there other potential considerations?
a.Holland had a good shot at winning the contract because Monsanto is know to be the high priced supplier.
b.Holland wanted to get its name known to companies so they would be willing to use it in future contracts.
c.Holland was just dumb. It should not try to enter the American market.
d.Holland was smart to enter the market and bid first because it gave it first mover advantage.
e.Holland felt that Coke and Pepsi would award contracts to multiple suppliers and it would be able to win contracts to supply part of the market.
Question 5
Prior to Holland Sweetener's entry into the U.S. market, Pepsi and Coke began deemphasizing the NutraSweet label on their cans and bottles. Why do you think they did this?
a.To signal that once the patent expired they were willing to switch suppliers in order to pay less for aspartame.
b.To stop providing free advertising for Monsanto
c.To keep their customers from knowing which company supplied the aspartame used in soft drinks.
d.To encourage NutraSweet to come up with a new logo.
e.Because they did not want to show the labels of multiple suppliers on their cans in case they selected more than one aspartame supplier.
Question 6
Explain how Monsanto had a first mover's advantage.
a.It was able to reveal its bid first, which discouraged Holland from bidding.
b.It was able to convince consumers that its brand was better than Holland's brand.
c.It was able to use its good relationship with Coke and Pepsi to convince them to award a single contract rather than multiple contracts and to give the contract to Monsanto in case both suppliers submitted the same bid.
d.It was able to keep other types of sweeteners out of the market because consumers became accustomed to aspartame.
e.It was able to use its good relationship with Coke and Pepsi to charge a slightly higher price than its competitors and still be awarded the contract.
Question 7
Pepsi and Coke were the big winners in this case. Why?
a.They were able to use multiple suppliers if they wanted to.
b.They were able to save $200 million a year by no longer using the NutaSweet label on their cans.
c.They were able to save $200 million a year because Monsanto had to lower its bid from $300 to $100 million in order to continue to be their aspartame supplier.
d.They received a lot of publicity from the contract negotiations.
e.They were able to save $200 million a year by no longer including NutraSweet in their advertising.