Safeway wants to expand into a new metropolitan area and is considering purchasing small, local supermarkets there that have eitherHigh,Medium, orLowprofit potential.

Each store owner has exactly one store and knows her own store's potential. High-, Medium-, and Low-potential owners have reservation values of $2M,$1.5M, and $1M, respectively.(Assume that a store ownerwill sellto Safeway as long as the offered price is greater than or equal to her reservation value.)

Safeway thinks it could improve supply-chain logistics, and hence its reservation value for any supermarket it purchases is 1.4 times the reservation value of the store's current owner. (Safeway's perceived value-add does not depend on the number of stores it ultimately purchases.) For example, if Safeway bought three Medium-potential stores for $1.5M each, the summed surplus it gets from its acquisitions is $1.8M.(This figure is just Safeway's reservation value, 1.4 times $1.5M, minus the $1.5M price it pays, all multiplied by three.)

Among the 60 local supermarkets it is considering, Safeway knows there are equal numbers of Low-, Medium- and High-potential stores but cannot tell which stores fall into which category.

Assume Safeway either offers the same take-it-or-leave-it price to all 60 local supermarkets or chooses not to make any offer at all.Which (if any) of the strategies listed below will maximize the summed surplus that Safeway gets from all acquisitions that go through?

a) Offer $1M per store.

b) Offer $1.5M per store.

c) Offer $2M per store.

d) Make no offer at all.

e) None of the above strategies would maximize the summed surplus of the transactions that go through.