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Payoff Matrix and Optimal Strategies Analysis

There are two firms, A and B, that manufacture color and black & white TV sets. The market demand per week is 150 color sets and 300 black & white sets. Each firm can choose different production strategies to determine how many of each type of set they will make. The optimal strategies are determined by constructing a payoff matrix and finding the equilibrium point that maximizes Firm A's gains and minimizes Firm B's losses.

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Palak Thukral
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1K views17 pages

Payoff Matrix and Optimal Strategies Analysis

There are two firms, A and B, that manufacture color and black & white TV sets. The market demand per week is 150 color sets and 300 black & white sets. Each firm can choose different production strategies to determine how many of each type of set they will make. The optimal strategies are determined by constructing a payoff matrix and finding the equilibrium point that maximizes Firm A's gains and minimizes Firm B's losses.

Uploaded by

Palak Thukral
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
  • Presentation Title
  • Introduction to the Case
  • Problems to be Solved
  • Constraints
  • Strategies for Firms
  • Constructing the Payoff Matrix
  • Market Dynamics
  • Objective of Each Firm
  • Finding the Equilibrium Point
  • Saddle Point Analysis
  • By Dominance Rule
  • Reduced Payoff Matrix
  • Calculating Probabilities for Firm A
  • Calculating Probabilities for Firm B
  • Value of the Game
  • Optimal Strategies & Value of the Game
  • Conclusion

There are two firms A & B that manufacture colour and black & white television sets.

Market demand per week is : 150 for coloured television sets 300 for black & white television sets.

The manufacturers would share market depending upon the proportion in which they manufacture a particular type of set.

1. TO WRITE THE PAYOFF MATRIX FOR FIRM PER WEEK.

2. TO OBTAIN THE OPTIMAL STRATEGIES FOR BOTH THE FIRM AND THE VALUE OF THE GAME.

1. Firm A can make either 150 colour sets in a week or an equal number of black & white sets.

2. Firm B can, on the other hand, make either 300 colour sets, or 150 colour and 150 black & white sets, or 300 black & white sets per week.

BOTH THE FIRMS MAKE THE PROFIT OF RS 400 PER COLOUR SET AND RS 300 PER BLACK & WHITE SET !!!

It can make STRATEGY 1 (S1):- 150 colour sets in a week. STRATEGY 2 (S2):- 150 black & white sets in a week.

It can make STRATEGY 1 (S1):- 300 colour sets in a week. STRATEGY 2 (S2):- 150 both type of sets. STRATEGY (S3):- 300 black & white sets in a week.

WOULD SHARE MARKET DEPENDING UPON THE PROPORTION IN WHICH THEY MANUFACTURE A PARTICULAR TYPE OF SET.

It means that when there is a demand for 150 coloured sets per week in the market and both the firms A & B are applying their 1st respective strategies therefore:A will be manufacturing 150 colour sets. B will be manufacturing 300 colour sets. Proportion will be in the ratio of 150/300 i.e. 1:2. Therefore each will be delivering :x + 2x = 150 => 3x = 150 => x = 50 It means that firm A will share 50 coloured sets and firm B will share 100 coloured sets in the market where the demand is 150 coloured sets.

AS AIM IS TO MAXIMIZE HIS GAINS. BS AIM IS TO MINIMIZE HIS LOSSES.


SO WE HAVE TO FIND OUT EQUILIBRIUM POINT WHERE : AS GAIN IS MAXIMIZED ,AND BS LOSS IS MINIMIZED.

P1 + P2 = 1 Q1 + Q2 + Q 3= 1
300 Color 150 Both sets type 300 Black & White sets

Q1
STRATEGIES

Q2 S2

Q3 S3

S1

150 Color sets 150 Black & White sets

P1

S1

20,000

30,000

60,000

P2

S2

45,000

45,000

30,000

300 Color sets

150 Both type

300 Black & White sets


Q3

Q1
STRATEGIES

Q2

S1

S2

S3

150 Color sets


150 Black & White sets

P1

S1

20,000

30,000

60,000

P2

S2

45,000

45,000

30,000

300 Color sets

300 Black & White sets

Q1
STRATEGIES

Q3
S3

S1

150 Color sets 150 Black & White sets

P1

S1

20,000

60,000

P2

S2

45,000

30,000

P1 is the probability that the firm A will apply their 1st strategy, thus:P1 = A22 A21 (A11 + A22) -(A12 + A21)

P2 is the probability that the firm A will apply their 2nd strategy, thus:-

P2 = (1-P1)

Therefore: P1 = 3/11 P2 = 8/11

Q1 is the probability that the firm B will apply their 1st strategy, thus:Q1 = A22 A12 (A11 + A22) -(A12 + A21)

Q3 is the probability that the firm B will apply their 3rd strategy, thus:Q3 = (1-Q1)

Therefore: Q1 = 6/11 Q2 = 0 Q3 = 5/11

SA

S1 P1 = 3/11

S2 P2 = 8/11

SB

S2 = Q1 = 6/11

F2 (B) Q2 = 0

S3 Q3 = 5/11

A22.A11-A21.A12 (A11 + A22)-(A12 + A21)

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