A Company Looking for Venture Capitalist Funding Is Deciding on the Design

question 20

Essay

A company looking for venture capitalist funding is deciding on the design of its operating system (OS) for its new phone. The first option is to simply buy the OS from another company. This would result in sales of either 10,000 units if the market is not crowded with similar phones, or sales of only 3,000 units if the market is crowded. If the company decides to design its own OS, the phone would have sales of 70,000 units if the OS was popular, but sales of only 2,000 if the OS was a failure. Suppose that to recoup the cost of designing their own OS the company would need to sell twice as many phones as when they simply buy the OS for the profit from the scenarios to be equal. Which option should the company choose if the probability that the market is crowded is 50% and the probability that the OS is popular is 75%?

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Definitions:

Full Price

The original, non-discounted price of a product or service before any sales promotions or reductions are applied.

Off-Price Retailing

A retail strategy involving selling branded goods at lower than the normal retail price typically due to overstock or discontinued lines.

Outlet Stores

Retail stores that sell products directly from manufacturers at discounted prices, often offering overstocked items, seconds, or end-of-season goods.

Discount Retailers

Retail stores that offer products at lower prices than those of competitors, typically by selling items in bulk or with minimal services.