QUESTION 1 Assume two companies: Lexus and BMW. where Lexus has introduced a new car that requires no maintenance for five years, people like it so much. A couple of years later, BMW has worked on a similar technology but is hesitant whether to enter or do not enter this market; BMW is not fully sure of the response of Lexus if it enters this prospering market; Lexus may or may not lower the price of its car. If BMW enters the market and Lexus reduces its price, then BMW loses $100 million, whereas Lexus profit stands at $250 million. However, it BMW enters the market it will generate $120 million profit conditioned on Lexus keeping its price the same and making $280 million profit. On another ground, if Lexus lowers its price, it makes $320 million profit if BMW does not enter the market and thus making 50 profit. Similarly, BMW receives 50 profit if it does not enter the market while Lexus keeps its price the same and generating 400 million profit. From thus, we conclude that Lexus has two strategies: Lower the price or keep price the same. While BMW has two strategies: Enter the market or Do not enter the market. Develop a payoff matrix for this situation, and then answer the following question: What is the best strategy for BMW if Lexus lowers the price? enter the market where it makes $120 million profit do not enter the market do not enter the market and make $120 million profit do not enter the market where Lexus makes 5400 million profit QUESTION 1 Assume two companies: Lexus and BMW. where Lexus has introduced a new car that requires no maintenance for five years, people like it so much. A couple of years later, BMW has worked on a similar technology but is hesitant whether to enter or do not enter this market; BMW is not fully sure of the response of Lexus if it enters this prospering market; Lexus may or may not lower the price of its car. If BMW enters the market and Lexus reduces its price, then BMW loses $100 million, whereas Lexus profit stands at $250 million. However, it BMW enters the market it will generate $120 million profit conditioned on Lexus keeping its price the same and making $280 million profit. On another ground, if Lexus lowers its price, it makes $320 million profit if BMW does not enter the market and thus making 50 profit. Similarly, BMW receives 50 profit if it does not enter the market while Lexus keeps its price the same and generating 400 million profit. From thus, we conclude that Lexus has two strategies: Lower the price or keep price the same. While BMW has two strategies: Enter the market or Do not enter the market. Develop a payoff matrix for this situation, and then answer the following question: What is the best strategy for BMW if Lexus lowers the price? enter the market where it makes $120 million profit do not enter the market do not enter the market and make $120 million profit do not enter the market where Lexus makes 5400 million profit
