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Continuous Expansion of its Economy - Assignment Example

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This assignment "Continuous Expansion of its Economy " discusses two businesses, Hip-hop, and Gerries selling music CDs. The assignment analyses that The USA is enjoying today the longest continuous expansion of its economy since modern records began. …
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Continuous Expansion of its Economy
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Download file to see previous pages If Hip-hop sells CDs at 11, Gerries sells it at 10 and the latter gets 1800 monthly sales. If Hip-hop sells at 10, still Gerries gets 1800. A low price of 10 is the dominant strategy because Gerries gets it no matter how much the price Hip-hop sells the CDs.
The retailers have the option to sell the CDs at 10 or 11, and they can have a pre-commitment to meet the competition. If both sell at 10, they get 2000 each monthly sales, and if they sell at 11, they get 1800 each monthly sales. This is the dominant price. They can collude successfully, meaning they agree to sell this at this price. But each has the option to manipulate or to retaliate. Gerries can outsmart Hip-hop or Hip-hop can outsmart Gerries, making the 360 - 1600 sales for the 10 - 11 sell-off.
They both have the ability to retaliate because the difference is only 1. And what is 1 But what is 1 if you multiply it with the number of CDs sold in a month The figure is enticing to the mind of a retailer/businessman because it would seem big: 1 x nos. of CDs in a month would seem big. But if we follow our matrix, the picture is clear that if one sells at 11 and the other 10, the one who sells high will only get 360 and the other 1600.
Two fast food restaurant chains, BurgerBinge and McGinnis, are considering outlets within the same small shopping mall. If they both begin operations they will each lose 100,000 pa. If only one sets up it will earn 250,000 pa. profits. Draw up the pay off matrix.
Use the matrix to define and explain the notion of "first mover advantage".
In the first-mover advantage, a game is in equilibrium when neither player has an incentive to alter their choice. This means that both players have decided to set up their outlets. If they withdraw or do not set up, the game is not in equilibrium.
In the matrix, if BurgerBinge sets up the outlet alone, he gets 250,000 profits pa, but if McGinnis sets up too, they will both lose 100,000 each.
When both do not set up, they won't have profits, and the game is not in equilibrium.

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