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To simplify the analysis, assume there are 2,000,000 potential buyers in the market, each buyer purchases at most one tube of toothpaste 'om either P&G
To simplify the analysis, assume there are 2,000,000 potential buyers in the market, each buyer purchases at most one tube of toothpaste 'om either P&G or Hello Product, and only those buyers targeted by Hello Product have the option of purchasing its toothpaste. Each buyer has willingness to pay of $3.00 for one tube of P&G toothpaste and of $3.50 for one tube of Hello Product toothpaste. P&G has a $1.00 unit cost of serving buyers, and Hello Product has a $3.00 unit cost of serving buyers. 2. (4 points) What is P&G's payoff if it accommodates in Stage 3 (as a function of p and N)? What is P&G's payoff if it ghts in Stage 3 (as a function of p and N)? If Hello Product wants to ensure P&G accommodates at Stage 3, what condition must the target market size 01) and price (p) combination it selects at Stage 2 satisfy? (4 points) What target market size (N) and price (p) should Hello Product choose in Stage 2 of the game in order to ensure P&G accommodates and Hello Product maximizes its payoff? Be sure to show your work, including all calculations and conditions used. (4 points) Based on your answer to Question #3, does Hello Product add value (total surplus) by entering the game? If so, how much? If not, how much value does it destroy? Be sure to show your work, including all calculations. Clearly indicate the value (total surplus) of the game without entry and the value (total surplus) of the game with entry. In the game with entry, assume that Hello Product enters with the target market size (N) and price (p) indicated in your answer to Question #3. (3 points) According to the articles, P&G is ghting, not accommodating, Hello Product. Is this outcome consistent with your analysis in Question #2 through Question #4? Why or why not? If not, explain this inconsistency
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