Theme 3 Application

Question 1

Principal-Agent Problem

Answer 1

Steve Jobs released the Macintosh computer for his own amusement but it did not sell, angering shareholders.

Question 2

Organic growth

Answer 2

Wasabi (restaurant) grew from 1 store in 2003 to over 60 locations in the UK

Question 3

Horizontal Integration

Answer 3

United Airlines were to merge with Northwestern Airlines

Question 3

Backwards Vertical Integration

Answer 3

Ikea purchased 33,000 hectares of Romanian forest

Question 4

Forwards Vertical Integration

Answer 4

McDonald’s acquired Dynamic Yield (tech company) in 2019 to improve digital customer experience (e.g. ordering on their screens in-restaurant)

Question 5

Conglomerate Integration

Answer 5

Tata Group acquired Jaguar Land Rover in 2008

Question 5

De-Merger

Answer 5

Anglo American sold its nickel business for $500mn to focus on its copper and iron sectors

Question 6

Revenue Maximisation

Answer 6

Amazon maximises revenue through Prime membership, surpassing 200mn members globally in 2024, contributing to $500bn in total revenue

Question 7

Sales-Maximisation

Answer 7

When the PS3 was launched, it was sold at sales-maximisation point, and the games that they sold afterwards were then sold at profit-maximisation

Question 8

Profit-Satisficing

Answer 8

Owner of Flappybird deleted the app despite it making $50,000 a day because it affected his personal life (there were cases of people becoming severely addicted to the app and he felt guilty)

Question 8

Not-For Profit Firm

Answer 8

Oxfam

Question 9

Monopolistic Competition

Answer 9

7,700 cafes and coffee shops in the UK

Question 10

For-Profit Firm

Answer 10

Apple

Question 11

Public Sector Firm

Answer 11

BBC

Question 11

Perfect Competition

Answer 11

48,000 hair business operating in the UK

Question 12

Oligopoly

Answer 12

5-firm concentration ratio of the UK Supermarket industry is 66%

Question 13

Monopoly

Answer 13

Google owns 93% of the search engine market share

Question 14

Pure Monopoly

Answer 14

Windows in 1985 had 100% market share

Question 15

Monopsony

Answer 15

NHS has over 90% control over the UK healthcare market

Question 16

Risk-bearing EoS

Answer 16

Virgin created 400 different product using their profits

Question 16

Managerial EoS

Answer 16

JP Morgan have specialist managers in every division of finance

Question 17

Financial EoS

Answer 17

Alibaba has taken multiple nine-figure loans at very low interest rates because they are trustworthy

Question 18

Purchasing EoS

Answer 18

CostCo purchases its food and beverages in vast quantities, reducing per-unit cost

Question 19

Technical EoS

Answer 19

Google has just built an AI ‘Co-Scientist’ to help with research

Question 19

Diseconomies of Scale

Answer 19

In 2012, Goldman Sachs only appointed 70 new partners, much fewer than usual likely because they were operating past the minimum efficiency scale

Question 20

External EoS

Answer 20

India has unbanned iPhones on the condition that apple invests $320mn into local manufacturing and innovation

Question 21

Price Regulation

Answer 21

Ofgem limits the cap on UK household energy bills, recently increased it by 6.4%

Question 22

Profit Regulation

Answer 22

CMS forces US insurance companies to spend 85% of their profits on healthcare services

Question 23

Monopoly Power

Answer 23

Turing Pharmaceuticals raised the price of AIDS tablets from $13 to $750 overnight

Question 24

Overt Collusion

Answer 24

Virgin and British Airways colluded in 2010. Virgin whistle blew, forcing BA to pay £270mn in fines.

Question 24

Tacit Collusion

Answer 24

Citi, HSBC, Morgan Stanley, and RBC were recently fined £100mn by the CMA for sharing information about gilts

Question 24

Predatory Pricing

Answer 24

Temu loses $500mn annually tying to break into western markets

Question 25

Price War

Answer 25

Supermarket price war in 1995 resulted in Tesco selling baked beans for 3p and Asda selling them for 5p

Question 26

Limit Pricing

Answer 26

Walmart frequently uses limit pricing to keep small shops out of the market

Question 26

X-inefficiency

Answer 26

Thames Water secured a £3bn loan to help cover its x-inefficiency-related costs

Question 27

Dynamic Efficiency

Answer 27

Starbucks spent around $15mn on researching how to improve the taste and design of their drinks

Question 28

Natural Monopoly / Sunk Cost

Answer 28

TFL (natural monopoly!) incurred £129bn in costs when it set up its networks

Question 29

Brand Loyalty

Answer 29

16mn people use a Tesco clubcard

Question 30

Zero-Hour Contracts

Answer 30

1mn people are now on zero-hour contracts

Question 31

Trade Unions

Answer 31

1/4 of all workers in the UK are unionised

Question 32

Maximum Wage

Answer 32

EU capped banker bonuses at 100% of their salary or 200% with shareholder approval