GAME THEORY

Background: Travel-Rx plans to spend $6 million to transform 6 recreational vehicles (rv's) into health labs. The rv's will tour the Texas offering a $99 heart-health workup to anybody who wants one. The workup consists of a detailed questionnaire and some basic diagnostics (blood pressure, ultrasound, cholesterol test, etc). Using the information from the questionnaire and the diagnostics, a statistical analysis will determine the customer's risk of a heart "malfunction" in the next year, the next three years, and the next five years. Similar question-based analyses are free online; expensive diagnostic-based analyses are available from doctors; Travel-Rx merges the two. None of the statistical analyses can outperform a coin-flip.

Travel-Rx claims that one factor in the decision to go with 6 labs is that 6 labs will deter entry by others. They provided the following data to support their claim (the numbers are expected profits):

	The Competition
Travel-Rx		Do Not Enter	Enter & Compete
5 or fewer labs	30, 0	5, 10
6 or more labs	20, 0	2,2

• If Travel-Rx goes through with the decision to enter with 6 labs as the first mover, what do you expect to happen in the marketwhat will the competition do, and where will the market eventually settle?