Reference no: EM132731479
In the December 2, 2020 edition of the Wall Street Journal, an article titled "UPS Slaps Shipping Limits on Gap, Nike to Manage E-Commerce Surge" mentioned that Walmart decided to offer free next-day-shipping to compete with Amazon. (You do not need to read the article in order to answer this question.)
This will be costly, but could be a smart move. To simplify the analysis, suppose this is a two-player, simultaneous play, non-cooperative game that is not repeated. The players (Amazon and Walmart) have 2 options: provide FREE next-day-delivery or NOT-FREE next-day delivery. (This Not-Free option could be that consumers pay for next-day delivery or the firm gives free delivery but at some day in the future: either way, this Not-Free delivery is cheaper for the firm but less attractive to the consumers.).
If they both choose NOT-FREE, each has profits of $150. If they both choose FREE delivery, they incur greater costs and each earns $100 profits. However, if Amazon chooses NOT-FREE and Walmart chooses FREE, Amazon gets $130 while Walmart gets $160. If Walmart chooses NOT FREE while Amazon chooses FREE, Walmart gets $75 while Amazon earns $175. Once again, for parts (a)-(c) you should assume this is a single play, non-repeated, non-cooperative game.
- Construct a payoff matrix to describe this simple noncooperative game. Please make Walmart the "top player" and Amazon the "side player."
- Is there a dominant strategy equilibrium to this game? Please explain in a brief narrative and make sure that you define the concepts you discuss.
- Is there a Nash Equilibrium to this game? Please explain in a brief narrative and make sure that you define the concepts you discuss.
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