What is the expected value to apple of lowering prices

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Reference no: EM132003286

Two rival companies, Apple and Samsung, are fighting for the market in mobile devices. Both are considering the option of lowering their prices. If they both keep prices the same, they'll keep getting the current profit levels. If one lowers prices, but the other doesn't, it could get significantly more profit at the expense of the other, as people buy the cheaper product. If both lower prices, however, both will keep the same market share and thus end up with lower profits. Imagine the payoffs are the following:

Samsung

Stay Lower

Apple Stay 53,53 11,83

Lower 83,11 18,18

(Apple is "player 1", so the first payoff in each pair is Apple's payoff.)

If Apple thinks that there is a 80% chance that Samsung will lower prices, what is the expected value to Apple of lowering prices?

Reference no: EM132003286

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