Determine the optimal strategy for the situation by representing it as a game an

Question

Determine the optimal strategy for the situation by representing it as a game and finding the saddle point. State your final answer in the terms of the original question. In an ongoing price war between burger Haven (locally owned) and MacArches (a chain), both restaurant managers plan to change the price of a hamburger by 10. If they both raise their prices, there will be no change in their market shares, but if they both lower their prices, the chain's national advertising will ensure that MacArches gains 5% of the market. Again because of advertising, if Burger Haven lowers their price and MacArches raises their price, Burger Haven will gain only 4% market. Use this information to decide what the managers should do. What does L represent? L represents lowering the price by 10. Lrepresents raising the price by 10 .What does R represent? R represents lowering the price by 10. R represents raising the price by 10. What should the managers do? Both restaurants should lower the price. Burger Haven should lower its prices, while MacArches raises its prices. Both restaurants should raise the price. MacArches should lower its prices, while burger Haven raises its prices.

Explanation / Answer

From the given information

1.L represents lowering the price by 10%

2. R represents raising the price by 10%

To find saddle point

If burger-haven lower their price and macarches raises their price then burger-haven will gain 4% only but if

macarches lowers their price they will gain 6%

so saddle point is the (2,1) in row 2 and column 1

3. MacArches should lower its prices while Burger Haven raises its price

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