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Payoff matrix

1. Mitchell Electronics produces a home video game that is very popular with children. Mitchell's managers believe that Wright Televideo Company is considering entering the market with a competing product. Mitchell must decide whether to set a high price to accomodate entry or a low, entry detering price. The payoff matrix below shows the profit outcome for each company under the alternative price and entry strategies. Mitchell's profit is entered before the comma, Wright's is after the comma.

(see chart in attached file)

a. Does Mitchell have a dominant strategy? Does Wright have a dominant strategy? Explain both cases.

b. Mitchell's managers have vaguely suggested a willingness to lower price in order to deter entry. Is this threat credible in light of the payoff matrix above?

c. If the threat is not credible, what changes in the payoff matrix would be needed to make the threat credible? What business strategies could Mitchell use to alter the payoffs so the threat is credible?


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