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Game Theory and Strategic Behavior

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In 300 words or more, please, provide your response to the attached discussion question. Please, show all your calculations and explain your responses.

Describe the circumstances under which a firm chooses a low-cost strategy to attain sustainable competitive advantage. What about the situations when a differentiation strategy is chosen? Provide specific real world examples.

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Solution Summary

The expert describes the circumstances under which a firm chooses a low-cost strategy to attain sustainable competitive advantages.

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Answer:
1) GE has option to advertise with a cost of $0.7 million or $12 million and MAYTANG has option to stay away from the market or enter the market. Here GE will play its dominant strategy and it would try to keep MAYTANG away from the market. Based on this strategy, if GE elect for advertising with $0.7 million then in this case it will have a payoff of $15 million because MAYTANG has better option to enter the market and it would enter for $12 million payoff. Therefore the best option for GE is to advertise with $12 million in this case again MAYTANG would enter the market but it will have a payoff of $1 million whereas the payoff for GE is $20 million.
With GE advertising with $12 million, the company is still not successful to keep MAYTANG away from market but it is capable of reducing the payoff for MAYTANG to $1 million.

Therefore the equilibrium outcome for this game is ($1M, $20M).

If GE does a little bit more of advertising ...

Solution provided by:
Jayant Kumar, MBA
Education
  • MBA, Indian Institute of Finance
  • Bsc, Madras University
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