Mitchell Electronics produces a home video game that has become very popular with children. Mitchell's managers have reason to believe that Wright Televideo Company is considering entering the market with a competing product. Mitchell must decide whether to set a high price to accomodate entry or a low, entry detening price. The payoff matrix below shows the profit outcome for each company under the alternative price and entry strategies Mitchell's profit is entered before the comma, Wright's is after the comma.
|
|
|
Enter
|
Wright Televideo
|
|
|
High price
|
60,25
|
85,0
|
|
Mitchell
|
Low price
|
30,20
|
60,0
|
a. Does Mitchell have a dominant strategy? Explain.
b. Does Wright have a dominant strategy? Explain.
c. Mitchell's managers have6vaguely suggested a willingness to lower price in order to deter entry.
Is this threat credible in light o± the payoff matrix above?
d. If the threat is not credible, what changes in the, payoff matrix wduld be necessary to make the threat credible? What business strategies could Mitchell use to alter the payoff matrix so that the threat is credible?