Week 6
Discussion
DQ 1 Game Theory and Strategic Behavior. Suppose that GE is
trying to prevent Maytag from entering the market for high efficiency clothes
dryers. Even though high efficiency dryers are more costly to produce, they are
also more profitable as they command sufficiently higher prices from consumers.
The following payoffs table shows the annual profits for GE and Maytag for the
advertising spending and entry decisions that they are facing.
Based on this information, can GE successfully prevent
Maytag from entering this market by increasing its advertising levels? What is
the equilibrium outcome in this game?
Suppose that an analyst at GE is convinced that just a
little bit more advertising by GE, say another $2m, would be sufficient to
deter enough customers from buying Maytag, thus, yield less than $0 profits for
Maytag in the event it enters. Suppose that spending an extra $2m on
advertising by GE will reduce its expected profits by $1.5 m, regardless of
whether Maytag enters or stays out. Would this additional spending on
advertising achieve the effect of deterring Maytag from entering? Should GE
pursue this option?
DQ 2 Sustainable Competitive Advantage. Describe the
circumstances under which a firm chooses a low-cost strategy to attain
sustainable competitive advantage. What about the situations when a
differentiation strategy is chosen? Provide specific real world examples.
