Walmart can be viewed as a first mover. Now suppose both Walmart and HEB are considering whether and how to enter a potential market. Market demand is given by the inverse demand function p= 900−q1−q2, where p is the market price margin, q1 is the quantity sold by Walmart and q2is the quantity sold by HEB. To enter the market, a retailer must build a store. Two types of stores can be built: Small and Large. A Small pantry store requires an investment of $50,000, and it allows the retailer to sell as many as 100 units of the goods at zero marginal cost. Alternatively, the retailer can pay $175,000 to construct a Large full-service supermarket that will allow it to sell any number of units at zero marginal cost. *Assume Walmart has built a Large full-service supermarket (i.e.Walmart chooses to build a large full-service supermarket L1 at the first stage). Calculate Walmart's profit for the following cases: a.) HEB chooses not to enter N at the second stage after viewing Walmart’s choice. b.) HEB chooses to build a small pantry store S at the second stage after viewing Walmart’s choice. c.) HEB chooses to build a large full-service supermarket L at the second stage after viewing Walmart’s choice.
Walmart can be viewed as a first mover. Now suppose both Walmart and HEB are considering whether and how to enter a potential market.
Market demand is given by the inverse demand function p= 900−q1−q2, where p is the market price margin, q1 is the quantity sold by Walmart and q2is the quantity sold by HEB.
To enter the market, a retailer must build a store. Two types of stores can be built: Small and Large. A Small pantry store requires an investment of $50,000, and it allows the retailer to sell as many as 100 units of the goods at zero marginal cost. Alternatively, the retailer can pay $175,000 to construct a Large full-service supermarket that will allow it to sell any number of units at zero marginal cost.
*Assume Walmart has built a Large full-service supermarket (i.e.Walmart chooses to build a large full-service supermarket L1 at the first stage). Calculate Walmart's profit for the following cases:
a.) HEB chooses not to enter N at the second stage after viewing Walmart’s choice.
b.) HEB chooses to build a small pantry store S at the second stage after viewing Walmart’s choice.
c.) HEB chooses to build a large full-service supermarket L at the second stage after viewing Walmart’s choice.
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