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Business Game Theory: Opening New Stores

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In a big city, two companies X and Y are competing for business. They have one store each. Under current conditions they share the total sales of $800,000 equally. Company X is planning to open one or two more stores, or may continue with the existing store (no new stores). Company Y can open only one additional store, or may continue with the existing store (no new stores). Each new store costs $50,000 to build. If they have the same number of stores the companies will share the total sales equally; if one company has one more store than the other it will have 55% of the total sales; if one company has two more stores than the other one it will have 65% of the total sales. Create the game matrix of this two-person game showing the possible actions and payoffs.

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Solution Summary

This solution shows how to calculate and construct a payoff matrix for two large companies that are considering opening new stores.

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Payoff matrix: Company X vs. Company Y

Numbers show payoffs of
Company X : Company Y Company Y strategy
No new stores ...

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