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4) Mitchell Electronics produces a home video game that has become very popular with children. Mitchell's managers have reason to believe that Wright Televideo Company is considering entering the market with a competing product. Mitchell must decide whether to set a high price to accommodate entry or a low price to deter entry. The payoff matrix below shows the profit outcome for each company under the alternative price and entry strategies with the payoffs occurring as (Mitchell, Wright).


a) Does Mitchell have a dominant strategy? Explain.
b) Does Wright have a dominant strategy? Explain.
c) Mitchell's managers have vaguely suggested a willingness to lower price in order to deter entry. Is this threat credible in light of the payoff matrix? Explain.
d) If the threat is not credible, what changes in the payoff matrix would be necessary to make the threat credible? What business strategies could Mitchell use to alter the payoff matrix so that the threat is credible?

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a) Does Mitchell have a dominant strategy? Explain.
Mitchell's dominant strategy is the high price. Regardless of Wright's decision to enter, Mitchell earns a larger profit with a high price.

b) Does Wright have a dominant strategy? Explain.
Wright does not have a dominant strategy. Wright's best ...

Solution Summary

PAYOFF MATRIX is applied.

See Also This Related BrainMass Solution

Given a payoff matrix determine whether each firm has dominant strategy.

Dominant Strategies
Suppose two competitors each face important strategic decisions where the payoff to each decision depend upon the reactions of the competitor. Firm A can choose
either row in the payoff matrix defined below, whereas firm B can choose either column. For firm A the choice is either "up" or "down"; for firm B the choice is either
"left" or "right". Notice that neither firm can unilaterally choose a given cell in the profit payoff matrix. The ultimate result of this one-shot
simultaneous-move game depends upon the choices made by both competitors. In this payoff matrix, strategic decisions made by firm A or firm B could signify decisions to offer a money-back
guarantee, lower prices, free shipping, and so on. The first number in each cell is the profit payoff to firm A; the second number is the profit payoff to firm B

Firm B
Firm A Competitive Strategy Left Right

Up $ 75,000; $ 10,000 $ 50,000; $ 40,000

Down $ 25,000; $ 25,000 $ 80,000; $ 30,000

A. Is there a dominant strategy for firm A? If so, what is it?

B. Is there a dominant strategy for firm B? If so, what is it?

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