Determine the optimal strategy for firm

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Reference no: EM1372790

Figure 10-13 demonstrate the payoff matrix for the only 2-auto dealerships in a community, Jim's Autos and Tim's Autos. The matrix demonstrate the profits that each company would earn from selecting either a low price or a high price.

JIM'S AUCTIONS
LOW PRICE HIGH PRICE
LOW PRICE TIM'S PROFIT 100,000 TIM'S PROFIT 250,000
JIM'S PROFIT 100,000 JIM'S PROFIT -50,000
TIM'S AUCTIONS
HIGH PRICE TIM'S PROFIT -50,000 TIM'S PROFIT 200,000
JIM'S PROFIT 250,000 JIM'S PROFIT 200,000

a.The dealers set their prices independently. What is dominant strategy for each dealer? Determine the optimal strategy for each firm. What is the optimal pay-off for each dealer? Explain briefly.
b. If the dealers were to merge and both dealers were managed as a single business, how would this affect its pricing strategy? Explain.

Reference no: EM1372790

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