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Suppose that WalhMart and Target are independently deciding whether to continue using bar codes or switch to RFID tags to monitor the flow of products. Many suppliers sell to both discount stores and using only one system is much less costly for them.
If both companies switch to RFID codes, Walmart earns a profit of $2 billion while Target earns a profit of $4 billion. If both companies continue to use bar codes, Walmart earns a profit of $4 billion while Target earns a profit of $3 billion. If Walmart continues to use bar codes while Target switches to FRID tags, Walmart earns a profit of $1 billion while Target earns a profit of $2 billion. If Walmart switches to RFID tags while Target continues using bar codes, Walmart earns a profit of $4 billion while Target earns a profit of $3 billion.
a) Illustrate this strategic interaction using a game in normal form (matrix form).
b) Has WallMart a strictly dominant strategy? Has it a strictly dominated strategy? Clearly explain.
c) What are the pure strategies Nash equilibrium(s) in this game?
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