Suppose Subway and Jimmy John\'s are each deciding whether or not to run a 2-for

Question

Suppose Subway and Jimmy John's are each deciding whether or not to run a 2-for-1 promotion during the first week of May. Each company does not know what the other will do when making its own choice. We model this using game theory and come up with the following payoff matrix showing the profit for each company for the week in each possible situation. Use this matrix to answer questions 8 and 9. According to the payoff table above, the dominant strategy for Subway is best described by which of the following? The dominant strategy of Subway is dependent upon the strategy of Jimmy John's Subway does not have a dominant strategy The dominant strategy of Subway is to not run a promotion (no coupons) The dominant strategy of Subway is to run a 2-for-l promotion The dominant strategy of Subway is to assassinate Jimmy John What is the Nash equilibrium outcome of this game? Neither run the promotion Both run the promotion Jimmy John's runs the promotion, Subway does not Subway runs the promotion, Jimmy John's does not

Explanation / Answer

If Subway decide to run a 2 in 1 promotion then Jimmy John's will earn profit of 1,000 if it also run a 2-in-1 promotion and will earn 5,000 if it pursues no coupons strategy. Since, payoff for Jimmy John's is higher in case of no coupon strategy, it will choose no coupon strategy if subway decides to run a 2 in 1 promotion.

If Subway decide to run no coupon strategy then Jimmy John's will earn profit of 15,000 if it run a 2-in-1 promotion and will earn 10,000 if it pursues no coupons strategy. Since, payoff for Jimmy John's is higher in case of 2 in 1 promotion strategy, it will choose 2 in 1 promotion strategy if subway decides to run a no coupon strategy.

As we can see in above discussion, strategy of Jimmy John changes as per the change in strategy of Subway so, Jimmy John's does not have a dominant strategy.

If Jimmy John's decide to run a 2 in 1 promotion then Subway will earn profit of 1,000 if it also run a 2-in-1 promotion and will earn 5,000 if it pursues no coupons strategy. Since, payoff for Subway is higher in case of no coupon strategy, it will choose no coupon strategy if JimmyJohn's decides to run a 2 in 1 promotion.

If Jimmy John's decide to run no coupon strategy then Subway will earn profit of 15,000 if it run a 2-in-1 promotion and will earn 10,000 if it pursues no coupons strategy. Since, payoff for Subway is higher in case of 2 in 1 promotion strategy, it will choose 2 in 1 promotion strategy if Jimmy John's decides to run a no coupon strategy.

As we can see in above discussion, strategy of Subway changes as per the change in strategy of Jimmy John's so, Subway does not have a dominant strategy.

So,

Q8. Hence, the correct answer is option (b).

Q9. Hence, the correct answer is option (a).

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.