Two solutions to Market threat

There are two solutions to this exercise. The variation is related to the way you name the variables. In the first solution, as A’s sales in relation to the decline, the market threat goes up. As this happens, price competition by a increases, as does market share resulting in an increase of sales for A relation to B. you can walk through the right-hand side of the diagram in a similar way.

In the second solution, the signs on  some of the causal arrows changed.  this is because the variables named differently. Instead of Price competition by A, we simply have A’s price.

Notice that the  sign on the connection between Market threat to A and A’s price is now an O.

The dynamics are exactly the same. Both of the loops in both of the archetypes are balancing loops. This attempt by both companies to balance their own system relative to the other results in escalating price will.

 

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