Smith Cable, Inc. and Jones Glass Fibre Works are the two largest suppliers of a specialty fiber-optic cable used by NASA and military defense contractors. On the first day of every month, both companies post on the Internet a list of prices for their various fiber-optic cable products-either high prices or low prices. The following payoff table provides the monthly profits for Smith and Jones: Jones Glass Fibre Works High prices Low prices A C Smith Cable, Inc. High prices $7, S4 B D Low prices $2, $5.5 $8, S1 $4, S2 Payoffs in dollars of monthly profit (a) Suppose the pricing decision is made sequentially. Using the payoff table, complete the two sequential game trees. In the first game tree, let Smith Cable, Inc. make the first pricing decision. In the second game tree, let Jones Glass Fibre Works go first. After you complete the two game trees, solve both sequential decision games using the roll-back method. Circle the solution path on each game tree. (b) Do Smith Cable, Inc. and Jones Glass Fibre Works experience a first-mover advantage, second-mover advantage, or neither a first- nor a second-mover advantage? Explain your answer.

Smith Cable, Inc. and Jones Glass Fibre Works are the two largest suppliers of a specialty fiber-optic cable used by NASA and military defense contractors. On the first day of every month, both companies post on the Internet a list of prices for their various fiber-optic cable products-either high prices or low prices. The following payoff table provides the monthly profits for Smith and Jones: Jones Glass Fibre Works High prices Low prices A C Smith Cable, Inc. High prices $7, S4 B D Low prices $2, $5.5 $8, S1 $4, S2 Payoffs in dollars of monthly profit (a) Suppose the pricing decision is made sequentially. Using the payoff table, complete the two sequential game trees. In the first game tree, let Smith Cable, Inc. make the first pricing decision. In the second game tree, let Jones Glass Fibre Works go first. After you complete the two game trees, solve both sequential decision games using the roll-back method. Circle the solution path on each game tree. (b) Do Smith Cable, Inc. and Jones Glass Fibre Works experience a first-mover advantage, second-mover advantage, or neither a first- nor a second-mover advantage? Explain your answer.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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