Outline of the Strategic Challenge Recently, a cure for a rare condition causing mild gastrointestinal distress known as Ghul's disease has been developed by Fries Laboratories. Unfortunately, the cure developed by Fries has severe side effectsit induces severe chills and shivering, which is worse than the gastrointestinal distress from Ghul's disease. However, Wayne Enterprises has recently developed a drug that suppresses the undesirable side effects of the cure developed by Fries Laboratories. Wayne Enterprises will announce their price; afterwards (and with knowledge of Wayne's price), Fries Laboratories will announce its price.

The Problem for Wayne Enterprises Your job is to maximize profits for Wayne Enterprises. Unfortunately, your drug is costly to manufacture, and so your profits are given by (pw cw)Q, where pw is the price charged by Wayne Enterprises for the drug, cw = 2 is the manufacturing cost for the drug, and Q is the quantity sold. The Problem for Fries Laboratories You expect Fries Laboratories to also try to maximize profits. Profits for Fries Laboratories are given by (pf cf)Q, where pf is the price charged by Fries Laboratories for the drug, cf = 4 is their manufacturing cost for the drug, and Q is the quantity sold.

Demand for the Cure Ghul's disease affects different people to varying degrees, and hence there is a large degree of dispersion in the willingness-to-pay for the Fries/Wayne drug combination. Hence, demand (for both Fries' and Wayne's drug) is given by Q = 18 pf pw.

The Pricing Decision You must decide on a price before Fries announces its pricing decision. What price will you charge? _____________. What price do you expect Fries to charge? ___________