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Calculate visa and mastercards mixed strategy equilibrium

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Reference no: EM13882321

Visa and Mastercard are competing for customers in the consumer credit market. They have two marketing ploys to attract new credit worthy card holders: Offer rewards points or low introductory rates. Visa knows that if it has a better rewards program than Mastercard and that if the both offer rewards, visa will gain 12% share over Mastercard. Visa also knows that Mastercard can sustain low introductory rates longer so if they both offer low introductory rates Visa will lose 10% share. Visa and Mastercard both go with their strong or weak option, neither will gain advantage.

a. Draw Visa's zero-sum game.

b. Use the minmax-maxmin process and determine if there is an equilibrium. Explain your solution or why there is not one.

c. Calculate Visa and Mastercard's mixed strategy equilibrium.

Reference no: EM13882321

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