Two discount superstores (Ultimate Saver and SuperDuper Saver) in a growing urba
ID: 2722455 • Letter: T
Question
Two discount superstores (Ultimate Saver and SuperDuper Saver) in a growing urban area are interested in expanding their market share. Both are interested in expanding the size of their store and parking lot to accommodate potential growth in their customer base. The following game depicts the strategic outcomes that result from the game. Growth related profits of the two discount superstores under two scenarios are reflected in the table below.
SuperDuper Saver
Increase the size of store and parking lot
Do not increase the size of store and parking lot
Ultimate Saver
Increase the size of store & parking lot
SuperDuper Saver = $50
Ultimate Saver = $65
SuperDuper Saver = $30
Ultimate Saver = $270
Don’t increase the size of store & parking lot
SuperDuper Saver = $270
Ultimate Saver = $30
SuperDuper Saver = $80
Ultimate Saver = $120
SuperDuper Saver
Increase the size of store and parking lot
Do not increase the size of store and parking lot
Ultimate Saver
Increase the size of store & parking lot
SuperDuper Saver = $50
Ultimate Saver = $65
SuperDuper Saver = $30
Ultimate Saver = $270
Don’t increase the size of store & parking lot
SuperDuper Saver = $270
Ultimate Saver = $30
SuperDuper Saver = $80
Ultimate Saver = $120
Explanation / Answer
ANS:
The dominant strategy is to increase the size of its store and parking lot for both stores. If both stores follow a dominant strategy, Ultimate Saver's growth-related profits will be $65. The owners of SuperDuper Saver and Ultimate Saver meet for a friendly game and happen to discuss a strategy to optimize growth related profit. They should both agree to refrain from increasing their store and parking lot sizes.
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