Galileo Games produce the game Strategy ($million) produce the game ($ million) (A, B) does not produce the game ($ million) (CD) Atlas Games does not produce the game ($ million) (E, F) (G, H) Using the information provided and the above payoff matrix, the expected profit, A, is A/ million dollars. The expected profit, B, is A/ million dollars. The expected profit, C, is A/ million dollars. The expected profit, D, is A/ million dollars. The expected profit, E, is A/ million dollars. The expected profit, F, is A/ million dollars. The expected profit, G, is A/ million dollars. The expected profit, H, is A/ million dollars.
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Atlas Games is considering selling a new educational board game that is designed to introduce teenagers (ages 13 to 18) to the complexities of taxes, corporate takeovers, and market manipulation. The company must decide quickly whether to proceed with selling this game. Production of this game will require an investment of $6 million to complete the game's design, marketing, and setup for production, and an additional production cost of $8 per game.
At the same time, Galileo Games, a competitor, is considering selling a new and similar educational board game. Galileo Games' new educational board game will compete directly with Atlas Games' new educational board game. Production of this game at Galileo Games will require an investment of $10 million and an additional production cost of $8 per game.
Market research shows that there are 2.5 million potential customers in the market for educational games, and each customer is willing to pay $20 for an educational game regardless of whether it is a game from Atlas Games or from Galileo Games. If both companies introduce their game to the market, competition will force the companies to set the price at $15 per game and each firm will have 50% of the market sales. On the other hand, if only one firm introduces their game to the market, that firm will act as a monopolist and have 100% of the market sales.
Due to market conditions and the short timeline to meet a holiday release, both companies must make their profit-maximizing decisions simultaneously. The chart below is the framework for a normal-form game with each firm's strategies, where their payoffs are their expected profits and these are represented by the blue letters A through to H.
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