There are two Ford dealerships in town: Bill’s and Jeremy’s. Each of these new c
ID: 2382789 • Letter: T
Question
There are two Ford dealerships in town: Bill’s and Jeremy’s. Each of these new car dealers have three alternative strategies that they could pursue: (1)highlight . Each of these new car dealers have three alternative strategies that they could pursue: (1) highlight service department quality; (2) be the low-price dealer on all automobile sales; or (3) hire a well-known sports star and engage in extensive advertising in outlying small towns and rural areas.
The payoffs (profits) of these strategies are listed below, with Bill’s profits being the first number in each cell.
Jeremy’s
Service
Low Cost
Advertising
Bill’s
Service
24, 33
18, 36
15, 42
Low Cost
36, 27
24, 30
18, 24
Advertising
33, 18
30, 24
12, 18
a) Does either firm have a dominant strategy? How about a dominated strategy? If so, explain why and what the implications are for their strategy.
b) What do you predict will be the outcome of this strategic interaction between these two firms? i.e. what strategy will each firm choose? Briefly explain why.
Jeremy’s
Service
Low Cost
Advertising
Bill’s
Service
24, 33
18, 36
15, 42
Low Cost
36, 27
24, 30
18, 24
Advertising
33, 18
30, 24
12, 18
Explanation / Answer
Answer a: Dominant Strategy is when one firm has advantage over the other firm in any scenario or any strategy. Jeremy's firm seems to have a dominant strategy, where in all scenario (except in 2; when Jeremy chooses service and Bill chooses low cost and the other when Jeremy chooses Low cost and bill chooses Advertising strategies there are chances of Bill being profitable) or else in all the above scenarios its evident that Jeremy is in a better position as profitability is considered.
Answer b: Both firms should choose different strategies, the above graph shows there are less chances of a win-win scenario if they choose same strategy, Bill should either choose Low cost or Advertising and the choice should be very much based on what Jeremy chooses, whereas Jeremy can easily choose any of the three.