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BUS 640 week 6 DQs Game Theory and Strategic Behavior and Sustainable Competitive Advantage

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BUS 640 week 6 DQs
Game Theory and Strategic Behavior
1. 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?

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Answer
a) This is the game theory Matrix for the situation.
GE
Advertising = $12m Advertising = $0.7m
Stay Out
$0, $30m
$0, $35m
Enter
MAYTAG
$1m , $20m
$12m, $15
Solved Game Theory Matrix for the situation
Solution
Question B)
Question C) It would deter Maytag to enter the business even as

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