A small town has two service stations, which sharethe town’s market for gasoline. The owner of Station A is debating whether to give away free glasses to her cus-tomers as part of a promotional scheme, and the owner of Station B is debating whether to give away free steakknives. They know (from similar situations elsewhere)that if Station A gives away free glasses and Station Bdoes not give away free steak knives, Station A’s share ofthe market will increase by 6 percent; if Station B givesaway free steak knives and Station A does not give awayfree glasses, Station B’s share of the market will increaseby 8 percent; and if both stations give away the respectiveitems, Station B’s share of the market will increase by3 percent.(a) Present this information in the form of a payoff tablein which the entries are Station A’s losses in its share ofthe market.(b) Find optimum strategies for the owners of thetwo stations.
A small town has two service stations, which share
the town’s market for gasoline. The owner of Station A
is debating whether to give away free glasses to her cus-
tomers as part of a promotional scheme, and the owner
of Station B is debating whether to give away free steak
knives. They know (from similar situations elsewhere)
that if Station A gives away free glasses and Station B
does not give away free steak knives, Station A’s share of
the market will increase by 6 percent; if Station B gives
away free steak knives and Station A does not give away
free glasses, Station B’s share of the market will increase
by 8 percent; and if both stations give away the respectiveitems, Station B’s share of the market will increase by
3 percent.
(a) Present this information in the form of a payoff table
in which the entries are Station A’s losses in its share of
the market.
(b) Find optimum strategies for the owners of the
two stations.
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