ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Suppose we have two ice cream sellers, Blue Cool Ice Cream and Red Mango Ice Cream, deciding where to locate along a 1 kilometer long linear beach. Beachgoers are uniformly spread out everywhere along the beach. They do not like walking, and they view the ice cream from the two sellers as homogenous goods. Because of this, they will always buy from the nearest seller. The sellers cannot choose their price, only the location.
A strategy for a player in this game is a distance between 0m and 1000m, which represents where the player will locate. For example, a distance of 0m is a strategy.
The payoffs are the percentages of the market that each seller captures (depending on their two strategies). For example, if Blue Cool chooses 0m and Red Mango chooses 1000m, their payoffs are 50% and 50%. If the two sellers locate at exactly the same spot, they share the market and get 50% each.
Suppose each player can only choose from 11 locations: 0m, 100m, 200m, 300m, 400m, 500m, 600m, 700m, 800m, 900m, 1000m. Is 0m a dominated strategy for Blue Cool?
Transcribed Image Text:Blue Cool's share of
Red Mango's share
the market
of the market
Blue Cool
Red Mango
Halfway mark between
Blue Cool and Red Mango
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