Game Theory > CASE STUDY > Case Study #2: “Pricing Games: Sony PlayStation and Microsoft Xbox” (All)

Case Study #2: “Pricing Games: Sony PlayStation and Microsoft Xbox”

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Case Study #2: “Pricing Games: Sony PlayStation and Microsoft Xbox” (Due Date: April 4 at 6:30 PM) Name: TJ Question 1: Given the information in Exhibits 1, 2, and 3 and assuming that collusion ... does not occur, would you predict that Sony and/or Microsoft will want to reduce console prices by $100? Complete the payoff matrix below to analyze this two-player simultaneous game by (1) replacing the player names with the names of the firms, (2) appropriately renaming the players’ strategies, and (3) calculating the payoffs for each player in the four possible outcomes. You can assume Nintendo monitors its competitors’ actions but has no plans to change its price. (5 points) Answer 1: Player 2 Strategy 1 Strategy 2 Player 1 Strategy 1 $A , $B $A , $B Strategy 2 $A , $B $A , $B Based on the calculation, when Sony and Microsoft reduce their prices for their console by $100.00 resulted in a higher profit. I believe that both organizations lower their prices so they can Microsoft-XBOX Don't Reduce Price -399 Reduce Price -299 SonyPlayStation Don't Reduce Price-399 $482.48 , $510.00 $217.22, $562.50 Reduce Price-299 $636.73, $186.97 $428.74, $470.01 PS3 Price Ps3 Sold Per Unit Total Cost Profit Attain 299 11.25 260.89 38.11 428.74 299 11.75 244.81 54.19 636.73 399 8.25 372.67 26.33 217.22 399 8.75 343.86 55.14 482.48 XBox360 Price XBOX 360 Sold Per Unit Total Cost Profit Attain 299 11.5 258.13 40.87 470.01 399 7 372.29 26.71 186.97 299 12.5 254 45 562.50 399 8 335.25 63.75 510.00 Question 2: Assume the demand curves implied by the data in Exhibit 1 are linear. How many units of PS3 and Xbox 360 will Sony and Microsoft sell, respectively, if they both charged $399? How many units will each firm sell if they both charged $299? Use your answers to calculate the arc price elasticities of demand for Sony and Microsoft if they both initially charged $399 then both dropped their price to $299. Based on your arc price elasticity of demand calculations, would you recommend Sony to increase or decrease its price for PS3 if Sony solely wanted to increase total revenue? Would you make the same price recommendation to Microsoft if it was solely interested in increasing total revenue? (5 points) [Show More]

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