Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN: 9781305506381
Author: James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher: Cengage Learning
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Chapter 13, Problem 6E
To determine
To Ascertain:
On the basis of the given scenario, propose a satisfactory solution and derive proper conclusions.
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Consider an ongoing sequence of pairwise marketing competitions between three companies with promotional campaigns of varying degrees of success. Each campaign involves comparative advertising belittling the target company. The company with the most loyal customers (call this firm “Most”) enjoys 100 percent success when it attacks either of the others. The company with the least loyal customers (“Least”) has a 30 percent success rate when it belittles either Most or “More.” More experiences an 80 percent success rate. The firms each launch their advertising attacks one at a time in an arbitrary sequence. Least goes first and can attack either Most or More. More attacks second, and Most attacks third. If more than one of the opponents survives the first round of competition, the order of play repeats itself: Least, then More, then Most. Any player can skip his or her turn; that is, the three actions available to Least to initiate the game are as follows: attack More, attack Most, or do…
A country’s market for new motor vehicles is dominated completely by two firms, Fastcars Ltd and Slowcars Ltd. Market revenue is fixed at $10 billion. Each firm can choose whether to advertise. Advertising costs $1 billion for each firm that advertises. If one firm advertises and the other does not, then the firm that advertises receives 100% of market revenue and pays for its advertising. If both firms advertise, they split the market revenue 50:50 and pay for their respective advertising. If neither advertises, they split the market revenue 50:50 but without the expense of advertising. a) What strategy would you advise that Fastcars Ltd should follow? b) What would you predict will be the strategy chosen by each firm? c) Is there an outcome that would make both firms better off? In case you find that there is such an outcome, is it achievable?
Company A and Company B are competing oligopolists. Both companies are considering increasing or maintaining their prices. The payoff matrix shows the profits of
the companies in millions based on their possible actions..
Company A Increase Price
Company B
Increase Price Maintain Price
$50, $40
Maintain Price $55, $45
$35, $30
$60, $35
The government offers a $5 million subsidy to maintain current pricing. What is the expected outcome of the new payoff matrix, given the subsidy?
The Nash equilibrium changes, and both companies will maintain their prices
The Nash equilibrium changes, and both companies will increase their prices.
The Nash equilibrium remains the same, and both companies will increase their prices
Company A will increase its price, while Company B maintains its price.
Company A will maintain its price, while Company B increases its price
Chapter 13 Solutions
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
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