Question
Bauer and Nike are planning their product positioning as they enter the hockey stick market. They can each target either lightweight sticks or better grip
Bauer and Nike are planning their product positioning as they enter the hockey stick market. They can each target either lightweight sticks or better grip technology, but not both. Their profits (in millions) of the four possible strategy combinations are indicated in the payoff matrix below.
Nike | |||
Bauer | Lightweight | Grip | |
Light weight | Bauer makes $3/Nike Makes $2 | Bauer makes $10/ Nike makes $3 | |
Grip | Bauer Makes $4 / Nike Makes $4 | Bauer makes $11 / Nike Makes 2$ |
Nike LIGHTWEIGHT GRIP Bauer LIGHTWEIGHT Bauer makes $3 BRU makes $2 Bauer makes $10 BRU makes $3 GRIP Bauer makes $4 BRU makes $4 Bauer makes $11 BRU makes $2
a. Assume the companies make simultaneous positioning decisions. Find the Nash equilibrium or equilibria, if any. Explain carefully
. b. Now suppose Bauer can move first, choosing its positioning before Nike does. Use a tree diagram to show the strategies and payoffs. Find the Sequential Nash equilibrium (or equilibria) in this sequential game. Explain
. c. What does Bauer gain or lose (if anything) by moving first? Explain.
d. Does Bauer have a dominant strategy? Explain. e. Does Nike have a dominant strategy? Explain.
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