You are a pricing manager at Baker Company-a medium-sized firm that recently introduced a new product into the market. Baker's only competitor is Argyle Inc., which is significantly smaller than Baker. The managerment of Baker has decided to pursue a short-term strategy of maximizing this quarter's revenues, and you are in- charge of formulating a strategy that will permit the firm to do so. After talking with an employee who was recently hired from the Argyle Inc., you are confident that a) Argyle is constrained to charge $20 or $40 for its product, b) Argyle's goal is to maximize this quarter's profit, and c) Argyle's relevant unit costs are identical to yours. You have been authorized to price the product at two possible levels ($15 or $25) and know that your relevant costs are $4 per unit. The marketing department has provided the following information about the expected number of units sold (in millions) this quarter at various prices to help you formulate your decision: Argyle's Quantity Baker's Argyle's Payout Baker's Baker's Argyle's Price Quantity Price payout $15 $20 $15 $40 10 3 $25 $20 $25 $40 12 Baker and Argyle currently set prices at the same time. Determine Baker's optimal price (single shot game) by setting up the normal form game in the standard "square". Are there any dominant strategies? If so, explain how you determined them. Are there any Nash equilibriums? If so, what are determine there were or were not? they and how did you What is your decision? Defend it in your initial answer. Respond to one of your classmates by examining their solution. Provide a critical response that explains why they did or did not answer the problem correctly. $20

Question
You are a pricing manager at Baker Company-a medium-sized firm that recently
introduced a new
product into the market. Baker's only competitor is Argyle Inc.,
which is significantly smaller than Baker. The managerment of Baker has decided to
pursue a short-term strategy of maximizing this quarter's revenues, and you are in-
charge of formulating a strategy that will permit the firm to do so. After talking with an
employee who was recently hired from the Argyle Inc., you are confident that a)
Argyle is constrained to charge $20 or $40 for its product, b) Argyle's goal is to
maximize this quarter's profit, and c) Argyle's relevant unit costs are identical to
yours. You have been authorized to price the product at two possible levels ($15 or
$25) and know that your relevant costs are $4 per unit. The marketing department
has provided the following information about the expected number of units sold (in
millions) this quarter at various prices to help you formulate your decision:
Argyle's
Quantity
Baker's
Argyle's
Payout
Baker's
Baker's
Argyle's
Price
Quantity
Price
payout
$15
$20
$15
$40
10
3
$25
$20
$25
$40
12
Baker and Argyle currently set prices at the same time.
Determine Baker's optimal price (single shot game) by setting up the normal
form game in the standard "square".
Are there any dominant strategies? If so, explain how you determined them.
Are there any Nash equilibriums? If so, what are
determine there were or were not?
they and how did you
What is your decision? Defend it in your initial answer.
Respond to one of your classmates by examining their solution. Provide a
critical response that explains why they did or did not answer the problem
correctly.
$20

Image Transcription

You are a pricing manager at Baker Company-a medium-sized firm that recently introduced a new product into the market. Baker's only competitor is Argyle Inc., which is significantly smaller than Baker. The managerment of Baker has decided to pursue a short-term strategy of maximizing this quarter's revenues, and you are in- charge of formulating a strategy that will permit the firm to do so. After talking with an employee who was recently hired from the Argyle Inc., you are confident that a) Argyle is constrained to charge $20 or $40 for its product, b) Argyle's goal is to maximize this quarter's profit, and c) Argyle's relevant unit costs are identical to yours. You have been authorized to price the product at two possible levels ($15 or $25) and know that your relevant costs are $4 per unit. The marketing department has provided the following information about the expected number of units sold (in millions) this quarter at various prices to help you formulate your decision: Argyle's Quantity Baker's Argyle's Payout Baker's Baker's Argyle's Price Quantity Price payout $15 $20 $15 $40 10 3 $25 $20 $25 $40 12 Baker and Argyle currently set prices at the same time. Determine Baker's optimal price (single shot game) by setting up the normal form game in the standard "square". Are there any dominant strategies? If so, explain how you determined them. Are there any Nash equilibriums? If so, what are determine there were or were not? they and how did you What is your decision? Defend it in your initial answer. Respond to one of your classmates by examining their solution. Provide a critical response that explains why they did or did not answer the problem correctly. $20

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