Question

Question:19. You are the manager of 3D Designs - a large imaging company that does graphics and web design work for companies. You and your only competitor are contemplating the purchase of a new 3-D imaging device. If only one of you acquires the device, that firm will earn profits of 20\( million and the other firm will lose \)9 million. Unfortunately, there is only one 3-D imaging device in the world, and additional devices will not be available for the foreseeable future. Recognizing this fact, an opportunistic salesperson for the company that makes this device calls you. She indicates that, for an additional up-front payment of $23 million (not included in the above figures), her firm will deliver the device to your company's premises tomorrow. Otherwise, she'll call your competitor and offer it the same deal. Should you accept or decline her offer? Explain.

Short answer

Answer:

The offer should be accepted.

Step-by-step solution

3-D imaging and up-front payment of millions. 

The fact that a single company owns the only 3-D imaging device and in view of the fact that more units will not be available in the short term, will generate a situation of raising rivals ‘costs among potential customers who want this new device to increase their profits.

The company that makes the first purchase will make a profit of $20 million while the other firms that do not have this technology will have losses of $9 million. However, the manufacturing company offered such a device for $23 million.

 Step 2: Analyzing the available options

Analyzing our two options, buy the device or not, we can conclude the following:

The table shows that purchasing the new 3-D imaging device is the best course of action. With the control position this company has, purchasing the gadget will result in a smaller initial loss. The 3D Design manager believes that by taking the initiative and purchasing the gadget, he will be able to offset the higher cost's loss and earn profits in the following fiscal years, at least until more of these devices are sold, other businesses buy them, and new competition is created.

Thus,the offer should be accepted.