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popular compact disc (CD) label at a price of eith 5/3/2021 2:31 PM

popular compact disc (CD) label at a price of eith 5/3/2021 2:31 PM

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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PRICING PRODUCTS Two competing music stores, Disco- Mart and Stereo World, each have the option of selling a certain popular compact disc (CD) label at a price of either Screen clipping taken: 5/3/2021 2:31 PM $7/CD or $8/CD. If both sell the label at the same price, they are each expected to get 50% of the business. If Dis- coMart sells the label at $7/CD and Stereo World sells the label at $8/CD, DiscoMart is expected to get 70% of the business; if DiscoMart sells the label at $8/CD and Stereo World sells the label at $7/CD, DiscoMart is expected to get 40% of the business. a. Represent this information in the form of a payoff matrix. b. Determine the optimal price that each company should sell the CD label for to ensure that it captures the largest possible expected market share.
Transcribed Image Text:PRICING PRODUCTS Two competing music stores, Disco- Mart and Stereo World, each have the option of selling a certain popular compact disc (CD) label at a price of either Screen clipping taken: 5/3/2021 2:31 PM $7/CD or $8/CD. If both sell the label at the same price, they are each expected to get 50% of the business. If Dis- coMart sells the label at $7/CD and Stereo World sells the label at $8/CD, DiscoMart is expected to get 70% of the business; if DiscoMart sells the label at $8/CD and Stereo World sells the label at $7/CD, DiscoMart is expected to get 40% of the business. a. Represent this information in the form of a payoff matrix. b. Determine the optimal price that each company should sell the CD label for to ensure that it captures the largest possible expected market share.
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