Return to the VLCC triopoly game of Exercise S9. In
reality, the three countries do not have identical production costs. China has
been gradually entering the VLCC construction market for several years, and its
production costs started out rather high due to lack of experience.
(a) Solve for the triopoly quantities, market shares,
price, and profits for the case where the per-ship costs are $20 million for
Korea, $40 million for Japan, and $60 million for China
After it gains experience and adds production capacity,
China’s per-ship cost will decrease dramatically. Because labor is even cheaper
in China than in Korea, eventually the per-ship cost will be even lower in
China than it is in Korea.
(b) Repeat part (a) with the adjustment that China’s
per-ship cost is $16 million