6/12/22, 10:10 PM Lesser Antilles Lines | Case Study Solution | Case Study Analysis

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Lesser Antilles Lines

*1. How do you evaluate the historic/existing pricing strategy of Lesser Antilles Lines (LAL) in the San
Huberto* market? What is the objective of this strategy? Can this objective be achieved?  

The objective is to “run them out of the market”. It is a poor strategy given that there is a price inelasticity of
demand so competing in prices is hurting performance at the expense of share. Moreover, it is a usual practice in
San Huberto for importers to divide their order between both shipping lines, so lowering prices makes it even
riskier since it is more difficult to run them off the market.  

2. What are the key assumptions behind the "Contribution Matrix" in Exhibit 4 of the case? How reasonable are
these assumptions given the market information that James Vaughan has been able to gather? Given the
assumptions, does the matrix reflect the correct objective functions (i.e. what should be maximized) for the two
firms?  

The game is played only once.  Best objective for LAL : KL@1900 – LAL@1600  Best objective for KL:
KL@1700 – LAL@1900  

3. If the values in the Contribution Matrix are, in fact, reasonable, what action would you recommend to LAL
management? How should they actually implement your recommendation?  

According to the contribution matrix there is an equilibrium at KL@1400 – LAL @1300 (1008, 895). At this
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6/12/22, 10:10 PM Lesser Antilles Lines | Case Study Solution | Case Study Analysis

prices, they would both have 50% mkt share.  If the game is played once and KL sets price at 800, LAL’s best
movement is to respond with 1100 (-291, 101). LAL will lose mkt. share but it would still get positive profits
whereas KL is gaining mkt share at the expense of its finance. This would not be sustainable in the long ...
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