lecture5-competition Flashcards
What environment do companies interact with consumers in?
A competitive environment
How can the decisions of competitors influence a company?
They may influence decisions such as:
* Introduce a new product?
* Change my price?
* Advertise more?
* Make product more accessible?
What defines a market?
A product and its competitors
What is Market Share?
Ratio of sales revenue of the firm to the total sales revenue of all firms in the industry
How is Market Share calculated?
us / (us + all of them)
What is a strategic decision in competition?
Company A makes decisions based on what it expects competitor B will do
What is Game Theory?
A formal treatment of strategic behavior
What defines a game in Game Theory?
Set of players, set of actions for each player, payoffs for each player in every contingency of the game
What is an equilibrium in Game Theory?
A setting from which neither player has an incentive to change its actions
What is a Nash equilibrium?
A situation where A’s choice is optimal given B’s choice and B’s choice is optimal given A’s choice
What is the scenario of the Prisoner’s Dilemma?
Two prisoners decide whether to confess or deny while being questioned separately
What are the outcomes for both prisoners if one confesses?
The one who confesses goes free, while the other spends 6 months in prison
What happens if both prisoners deny?
Both spend 1 month in prison for a technicality
What happens if both confess?
Both are held for 3 months
What is the pricing scenario between WSJ and NYT?
Price war with each issue costing $1 to produce, prices available: $2 or $3
What is the readership if the price is $3?
5 million
What is the readership if the price is $2?
8 million
Why do companies spend significant money on Super Bowl ads?
To maximize visibility and revenue
What are the advertising spending options for Bud Light and Miller Light?
They can choose to spend $5 million (1 ad spot) or $25 million (5 ad spots)
What is the total revenue in the market for advertising?
$100 million in the short run
What happens if both companies choose the same ad spend?
They split the revenue
What revenue share does the company choosing the higher ad spend get?
80% of revenue
What is the entry game scenario involving Kodak and Polaroid?
Kodak decides whether to enter the digital camera market while Polaroid can either fight the entry or accommodate
What are the Nash equilibria if players act simultaneously in the entry game?
(In, Accommodate) and (Out, Fight)
