Increasing market share and increasing profits

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The 2 major players in the disposable diaper market are Proctor and Gamble (40% of market) and Kimberly Clark (about 35% of the market). Both companies have undertaken costly research and development campaigns to gain a competitive edge- undercutting the rest of the market, increasing market share and increasing profits. R and D is costly so firs and must balance the benefits and costs of the undertaking. Complicating matters is the Rand D program of the rival firm. If neither firm does R and D, then Kimberly Clark earns a profit of 30 and Procter and Gamble earns a profit of 70. Suppose R and D costs 25 to undertake. If both firms do R and D, then neither gains an advantage and both bear the 25 R and D expense which lowers profits. The payoff matrix is given below:

A. Does Proctor and Gamble have a dominant strategy? What is it? Explain

B. Does Kimberly Clark have a dominant strategy? What is it? Explain

C. What will be the outcome of the "R adn D Game"?

Reference no: EM131033346


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