Reference no: EM133077236
You have been hired by the No Flight Golf company, and the first task is to decide whether to market a new golf ball utilizing breakthrough technology and, if so, determine the price. The payoff of your decision will be affected by whether your competitor will market similar balls and the price of their golf balls after you go to market. The cost to market the golf ball is $80,000, and the probability that your competitor will enter the market is 0, 75. The following table describes the payoffs of each pricing combination, assuming that No Flight will have competition.
|
Our price
|
High
|
Medium
|
Low
|
|
High
|
$400,000
|
$250,000
|
$25,000
|
|
Medium
|
$475,000
|
$325,000
|
$175,000
|
|
Low
|
$350,000
|
$250,000
|
$125,000
|
If No flight sets its price high, the probability that the competition will set its price high, medium, and low is 0.3, 0.55 and 0.15, respectively. If No Flight sets its price medium, the probability that the competition will set its price high, medium, and low is 0.2, 0.7 and 0.1, respectively. Finally, if No Flight sets its price low, the probability that the competition will set its price high, medium, and low is 0.15, 0.25, and 0.6, respectively.
If No Flight has no competition for its new golf balls, its expected payoff for setting the price high, medium, and low is $600,000, $500,000, and $400,000, respectively, excluding marketing cost. Do you recommend marketing the new golf balls? If so, what is the pricing recommendation?
Please show in Excel