Exam Questions

Sunrise Medical

Please read the Sunrise Medical, Inc.’s Wheelchair Products case and consider the following
questions. (The figure below is a snapshot of the industry in 1993.)

The Wheelchair Industry in 1993

1.! First, let us focus on Quickie Designs, Sunrise Medical’s largest division, to determine
whether Quickie has a competitive advantage and may or may not be creating added-
value compared to industry competitors. Specifically:

a.! How does the value proposition (i.e., value stick) of Quickie differ from its main
competitor Invacare? (Hint: Make sure to back up your claims with concrete
numbers. You may assume that figures in Exhibits 2-5 are indicative of Invacare’s
wheelchair business.) (15%)

b.! Propose potential explanations for Quickie’s competitive (dis)advantage

c.! Who is in a better position to take advantage of changes in the industry? In a

2.! In order to determine pricing strategy for Quickie, Richard Chandler hired a team of
consultants from Ecosystem Consulting Inc. He asked them to conduct a study to
determine the characteristics of the demand for various types of wheelchairs. Based on
these analyses and the information from Exhibits 2 and 4, Chandler constructed the table
below, which shows Quickie’s and Invacare’s marginal profit from selling standard
lightweight wheelchairs based on a normalized price per wheelchair. Note that all figures
are in millions of dollars and that Invacare’s profit is on the top left of each cell and
 Quickie’s profit is on the bottom right. (The table assumes that Guardian does not
introduce its own line of lightweight wheelchairs.)

0.00 0.00 0.00 0.00 0.00 0.00 0.27 0.80 1.33 1.87
1375 2.43 3.35 4.08 4.61 4.95 5.10 5.05 4.81 4.37 3.74
0.00 0.00 0.00 0.00 0.49 0.97 1.46 1.94 2.43 2.91
1300 2.33 3.20 3.88 4.37 4.66 4.76 4.66 4.37 3.88 3.20
0.00 0.22 0.66 1.09 1.53 1.97 2.40 2.84 3.28 3.71
1225 2.23 3.06 3.69 4.13 4.37 4.42 4.27 3.93 3.40 2.67
0.78 1.17 1.55 1.94 2.33 2.72 3.11 3.50 3.88 4.27
1150 2.14 2.91 3.50 3.88 4.08 4.08 3.88 3.50 2.91 2.14
1.53 1.87 2.21 2.55 2.89 3.23 3.57 3.91 4.25 4.59
Invacare 1075 2.04 2.77 3.30 3.64 3.79 3.74 3.50 3.06 2.43 1.60
Pricing+Level 2.04 2.33 2.62 2.91 3.20 3.50 3.79 4.08 4.37 4.66
1000 1.94 2.62 3.11 3.40 3.50 3.40 3.11 2.62 1.94 1.07
2.31 2.55 2.79 3.03 3.28 3.52 3.76 4.00 4.25 4.49
925 1.84 2.48 2.91 3.16 3.20 3.06 2.72 2.18 1.46 0.53
2.33 2.52 2.72 2.91 3.11 3.30 3.50 3.69 3.88 4.08
850 1.75 2.33 2.72 2.91 2.91 2.72 2.33 1.75 0.97 0.00
2.11 2.26 2.40 2.55 2.69 2.84 2.99 3.13 3.28 3.42
775 1.65 2.18 2.52 2.67 2.62 2.38 1.94 1.31 0.49 0.00
1.65 1.75 1.84 1.94 2.04 2.14 2.23 2.33 2.43 2.52
700 1.55 2.04 2.33 2.43 2.33 2.04 1.55 0.87 0.00 0.00
700 775 850 925 1000 1075 1150 1225 1300 1375
Quickie+Pricing+Level

a.! As a base case, determine the likely outcome from price competition between
Quickie and Invacare by finding the Nash equilibrium in a simultaneous, one-shot
game. Explain why this is the Nash Equilibrium. (8%)

b.! How would the following changes to the standard lightweight wheelchair industry
likely alter or not alter your answer to question a., considering each change
separately? (You are not expected to create a new matrix for any of the following
questions, but thinking about how the matrix might change in general terms may or
may not be helpful.)
i.! The government passes a law requiring wheelchair manufacturers to serve
all licensed dealers and forbidding promotional activities like sports days,
sports camps, and self-defense classes. (5%)
ii.! Quickie develops and patents a one-step folding mechanism for its standard
wheelchairs, and Invacare gains access to a proprietary source of high
quality, lightweight metal for its standard wheelchairs. Market research
indicates significant and roughly equally large, non fully-overlapping,
groups of elderly users and their helpers value either one or both of these
innovations. (5%)

c.! What can Quickie and Invacare do to improve on the outcome you calculated in a.?
How would you assess the prospects of the companies succeeding? (12%)
3.! Now let’s shift attention to the decisions about Guardian.

a.! Leaving aside the question of where production will take place, should Chandler
allow Guardian to introduce a lightweight standard wheelchair? Why or why not?
(15%)

b.! Assuming Guardian goes ahead with launching a lightweight standard wheelchair,
and that Quickie will not manufacture the product for Guardian, should Guardian
build a plant to produce a lightweight standard wheelchair or outsource
production to a third party? (10%)

c.! Assuming Guardian goes ahead with launching a lightweight standard wheelchair,
should Chandler merge Guardian and Quickie? Why or why not? (5%)