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Example of an oligopolistic industry

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Reference no: EM132478813

Suppose there are two discount superstores, Ultimate Saver (US) and SuperDuper Saver (SDS). Both are considering expanding their market share by increasing the size of their store and parking lot to accommodate potential growth in their customer base. The following game depicts the payoffs from two strategies of increasing the size of store and parking lot and not increasing the size of store and parking lot. Each cell indicating (profit in millions for US, profit in millions for SDS):

SDS

                                                                        Increase Size               Don't Increase Size

                        Increase Size                              (20, 20)                               (40, 10)

US

                        Don't Increase Size                   (10, 40)                               (30, 30)

(a) Is this an example of an oligopolistic industry?

(b) Provide a rationale for the payoffs to the two firms in each cell.

(c) Derive the Nash equilibrium strategy for each firm. 

(d) Based on the payoff matrix shown above, what strategies should the two firms use for joint profit maximization? Is this outcome a likely one?

(e) Is this game a prisoners' dilemma type game?

Reference no: EM132478813

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