Taking the Lead at Wayne Enterprises

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 effects $-$ it 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 now has the ability to precommit to a certain price before Fries can 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 $(p_W-c_W)Q,$ where $p_W$ is the price charged by Wayne Enterprises for the drug, $c_W=2$ 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 $(p_F-c_F)Q,$ where $p_F$ is the price charged by Fries Laboratories for the drug, $c_F=4$ 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 is given by $Q=18-p_F-p_W.$

The Pricing Decision

You must decide whether to precommit to a price before Fries announces its pricing decision, and if so what price you wish to set for your part of the cure to Ghul's disease. Your goal is the same as last time: to maximize profits for Wayne Enterprises.

Do you, Wayne Enterprises, plan to precommit to a price?

If so$,$ what price will you charge?