Question
TITAN is the dominant steel producer in the US, but its global competitor GIANTS has gained some sizable market share in the US recently by
TITAN is the dominant steel producer in the US, but its global competitor GIANTS has gained some sizable market share in the US recently by expanding into US via acquisitions. TITAN currently has a 40,000-ton capacity plant and GIANTS has two plants - a 16,000-ton plant and a 4,000-ton plant. Suppose these are the only two producers of steel in the US. The current market price is $5M per 1000 tons, and variable costs are $2M per 1000 tons. Assume fixed costs are negligible relative to variable costs, and the quality of steel produced across plants is identical. At current market price there is significant overcapacity, so each firm only produces 50% of its total capacity, i.e. the production level for TITAN is 20,000 tons and that for GIANTS is 10,000 tons respectively. Marketing research had indicated that lowering the price to $4M per 1000 tons while the other firm maintained its price at $5M would shift half of the other firm's demand to the firm with the lower price. If both firms lowered the price each would maintain its original share of overall demand. Assume no overall demand increase with lower price because the amount of manufacturing projects which use steel is fixed in the short term, and further assume all information above is public knowledge. Fill in the payoff structure in the following matrix.
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