Prepare Worksheet for Dynamic Pricing Game | Massachusetts Institute of Technology - Edubirdie

University:
Massachusetts Institute of Technology
Course:
15.992 | S-Lab: Laboratory for Sustainable Business
Academic year:

2023
Views:

94

Pages:

2
Author:

Travis Fuentes

Dynamic Pricing Game We will play the Dynamic Pricing Game next class. As preparation, please think about the game, answer the questions on the opposite side, and turn in this sheet to the TA at the beginning of next lecture. Description of Dynamic Price War: There are 100 customers and two firms. Loyalty Stage: Each firm decides whether to create a loyal customer case. At a cost of $250, each firm can guarantee that 30 customers will definitely buy its product regardless of the prices. Pricing Stage: Coin-flip determines which firm goes first. Both firms start with tentative price equal to $50. To keep things simple, firms are only allowed to set price equal to $50, $40, $30, $20, or $10. The Pricing Stage ends as soon as both firms have had a move and someone announces “No Change”. If prices stay $50 for both firms, each firm splits the market, selling 50 each If one firm ends up with a lower price, then the low-priced firm gets all customers who are not loyal to the high-price firm (either 100 or 70) while the high-price firm only sells to its loyal customers (0 or 30) If both firms end up with the same price, less than $50, then whoever was first to set that price gets all customers who aren’t loyal to the other firm (100 or 70) while that firm only sells to its loyal customers (0 or 30) Payoffs in the Game. Each firm wants to maximize its own profit = revenue minus its cost for loyalty (either $0 or $250) … firms have no other costs. Example of play. (This example is not intended to illustrate good or bad play.) In Loyalty Stage, firm A creates loyalty while firm B does not. In Pricing Stage, Firm B wins the coin flip. It stays at $50. Firm A then lowers its price to $30. Firm B then lowers its price to $20. Firm A then stays at $30 ending the game. Firm A’s profit is 30*$30 - $250 = $650. Firm B’s profit is 70*$20 - $0 = $1400. How would you play? What would you do in the following two situations? Please briefly explain your answers. 1. You have invested in Loyal customers, but the other firm has not. They win the coin flip and decide to undercut you with price $40. How would you respond? Why? 2. Neither you nor your opponent has invested in Loyal customers. You win the coin flip. Do you stay at $50 or undercut? If undercut, what price? Why? 3. Which do you plan to do: invest in Loyal customers or not?

Related Documents

Prepare Worksheet for Dynamic Pricing Game

Prepare Worksheet for Dynamic Pricing Game - Page 1

Prepare Worksheet for Dynamic Pricing Game - Page 2

of 2

Recommended Documents

Should Motorola Embrace 100% the Linux Operating System (OS) For Smartphones

Should Motorola Embrace 100% the Linux Operating System (OS) For Smartphones

Massachusetts Institute of Technology 15.992 | S-Lab: Laboratory for Sustainable Business

Lecture Note

Integrated Development Environments

Integrated Development Environments

Massachusetts Institute of Technology 15.992 | S-Lab: Laboratory for Sustainable Business

Lecture Note

Matching Supply and Demand - Tug of War

Matching Supply and Demand - Tug of War

Massachusetts Institute of Technology 15.992 | S-Lab: Laboratory for Sustainable Business

Lecture Note

Supply Chain Management - Value of Information

Supply Chain Management - Value of Information

Massachusetts Institute of Technology 15.992 | S-Lab: Laboratory for Sustainable Business

Lecture Note

Roadmap for Service Excellence

Roadmap for Service Excellence

Massachusetts Institute of Technology 15.992 | S-Lab: Laboratory for Sustainable Business

Lecture Note

Bargaining Simulation All Secret Instructions

Bargaining Simulation All Secret Instructions

Massachusetts Institute of Technology 15.992 | S-Lab: Laboratory for Sustainable Business

Lecture Note

Coalition Exercise - Questions for Reflection

Coalition Exercise - Questions for Reflection

Massachusetts Institute of Technology 15.992 | S-Lab: Laboratory for Sustainable Business

Lecture Note

Assignment Description for the PIE Letter

Assignment Description for the PIE Letter

Massachusetts Institute of Technology 15.992 | S-Lab: Laboratory for Sustainable Business

Answer Key

Information Technology Introduction to User Interface Building with Access Examples

Information Technology Introduction to User Interface Building with Access Examples

Massachusetts Institute of Technology 15.992 | S-Lab: Laboratory for Sustainable Business

Lecture Note

Information Technology Local Area Networks; Ethernet; Packet-switched Networks

Information Technology Local Area Networks; Ethernet; Packet-switched Networks

Massachusetts Institute of Technology 15.992 | S-Lab: Laboratory for Sustainable Business

Lecture Note

Assignment Due - PS4 due, Networks and Computer Security

Assignment Due - PS4 due, Networks and Computer Security

Massachusetts Institute of Technology 15.992 | S-Lab: Laboratory for Sustainable Business

Answer Key

Prepare Worksheet for Angry Negotiation Game

Prepare Worksheet for Angry Negotiation Game

Massachusetts Institute of Technology 15.992 | S-Lab: Laboratory for Sustainable Business

Answer Key

New Documents from this Course

Managing Teams

Massachusetts Institute of Technology 15.992 | S-Lab: Laboratory for Sustainable Business

Lecture Note

Global Management

Global Management

Massachusetts Institute of Technology 15.992 | S-Lab: Laboratory for Sustainable Business

Lecture Note

Managing Information

Managing Information

Massachusetts Institute of Technology 15.992 | S-Lab: Laboratory for Sustainable Business

Lecture Note

Planning

Massachusetts Institute of Technology 15.992 | S-Lab: Laboratory for Sustainable Business

Lecture Note

A Guide for Preparing Your Workplan

A Guide for Preparing Your Workplan

Massachusetts Institute of Technology 15.992 | S-Lab: Laboratory for Sustainable Business

Lecture Note

Action at the Industry and Societal Levels - Industry Collaborations

Action at the Industry and Societal Levels - Industry Collaborations

Massachusetts Institute of Technology 15.992 | S-Lab: Laboratory for Sustainable Business

Lecture Note

Green Buildings - New Markets and Services

Green Buildings - New Markets and Services

Massachusetts Institute of Technology 15.992 | S-Lab: Laboratory for Sustainable Business

Lecture Note

Case Example of Alternative Transportation Opportunities

Case Example of Alternative Transportation Opportunities

Massachusetts Institute of Technology 15.992 | S-Lab: Laboratory for Sustainable Business

Lecture Note

Sustainable retail. Can big box stores really go green

Sustainable retail. Can big box stores really go green

Massachusetts Institute of Technology 15.992 | S-Lab: Laboratory for Sustainable Business

Lecture Note

Organizational response

Organizational response

Massachusetts Institute of Technology 15.992 | S-Lab: Laboratory for Sustainable Business

Lecture Note

Bargaining Simulation General Instructions

Bargaining Simulation General Instructions

Massachusetts Institute of Technology 15.992 | S-Lab: Laboratory for Sustainable Business

Answer Key

Tax Considerations in Deal Structures

Tax Considerations in Deal Structures

Massachusetts Institute of Technology 15.992 | S-Lab: Laboratory for Sustainable Business

Answer Key