Lets say, each store is pursuing its own best interest. What will be a rational (or dominant) strategy for Super Home to follow? Explain in 3-4 sentences. What will be a rational (or dominant) strategy for Great Home to Follow? b) [What will be the annual profit growth for each store, if they both follow their dominant strategy? What is a Nash equilibrium here and why? Find out the Nash equilibrium using the pay-off matrix as shown above. c) Suppose the owners of Super Home and Great Homme meet for a friendly game of golf one afternoon and happen to discuss a strategy to optimize growth related profit. What should be the joint strategy they should both agree to? What will be annual profit growth for each store under this agreement?
Two home improvement stores (Great Home and Super Home) in a growing urban area are interested in expanding their market share. Both are interested in expanding the size of their store. and parking lot to accommodate potential growth in their customer base. Two possible actions for both the firms are increase the size of the store and parking lot' and 'do not increase the size of the store and parking lot. Payoffs are defined in terms increase in annual profits in $million. The Following table describes the payoffs for both the firms to alternative actions taken by each of them..
a) Lets say, each store is pursuing its own best interest. What will be a rational (or dominant) strategy for Super Home to follow? Explain in 3-4 sentences. What will be a rational (or dominant) strategy for Great Home to Follow?
b) [What will be the annual profit growth for each store, if they both follow their dominant strategy? What is a Nash equilibrium here and why? Find out the Nash equilibrium using the pay-off matrix as shown above.
c) Suppose the owners of Super Home and Great Homme meet for a friendly game of golf one afternoon and happen to discuss a strategy to optimize growth related profit. What should be the joint strategy they should both agree to? What will be annual profit growth for each store under this agreement?
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