195749714 by Unknown

195749714 by Unknown

Author:Unknown
Language: eng
Format: epub


Yet if Talmart and Sesco could get together they may increase their gains by achieving the superior mutually cooperative payoffs. But they could only do this if their incentives pushed them that way, and they need to remove the temptation to rebel and compete. Raising the payoffs from cooperation directly may be beyond them as the only clear way would be to engage in a plan of price-fixing, and that’s out as it’s likely to attract the attention of the authorities. Even if it didn’t the incentives would always be there to lower prices to secure a larger share of buyers’ sales. The only realistic option is to reduce the payoff associated with lowering prices. This means that the two companies need to act like a type of cartel, despite their competitive position and lack of power over each other to enforce such a situation.

Lowering prices is always likely to gain sales and income of course, so the only way to reduce this payoff is to increase the cost associated with lowering prices. One option is an expensive marketing and branding campaign by both sellers that links their branded identical product to a specific memorable price, such as $9.99. In that case any price cut would require an expensive new campaign to replace the old one. Or alternatively the sellers could figure out the rough amount of sales they expect to make at such a price, and only have that many manufactured and ready for sale in stores or online. Any price cut in those circumstances would see lower prices without increased sales as the products wouldn’t be available to sell, and any attempt to change this situation would of course also cost money. There would always be the risk that one company would do all of this while the other didn’t, and would still have the incentive to lower prices, but the methods here are quite visible and transparent and the firms could observe their rival’s investment or lack of it.

If these strategies were successful the game would look like the one below.



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