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"# Pricing strategies\n",
"## Prof. Rabanal [Econ 133]\n"
]
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"### Problem 1: Two firms, Ben & John\n",
"\n",
"Ben and John are the only two producers of energy bars in Waterville. They are decising whether to set high $p_H=1$ or low prices $p_L=.8$. (for simplicity assume neglilible fixed and variable costs)\n",
"\n",
"The game can be illustrated as Ben as the row player and John the column player\n",
"\n",
"\n",
"| | High | Low |\n",
"|------|-------|-------|\n",
"| High | 50,50 | 0,80 |\n",
"| Low | 80,0 | 40,40 |\n",
"\n",
"\n",
"Jack Consulting company found that all consumers are WTP $1. \n",
"\n",
"1. What is the total number of consumers in Waterville? \n",
"\n",
"2. What is the price that prevails in the market? Why? \n",
"\n",
"3. Jack asks some Russian programmers to confuse some of the consumers about the prices that Ben and John are setting. The consequence is that 80 percent of the consumers are uninformed about the prices in the market and shop without looking the price tag. Other consumers (20 percent) do know the prices and buy from the cheapest option. Please complete the new box with the appropriate values \n",
"\n",
"4. Using the new payoffs, which prices do you expect in the market? why? \n",
"\n",
"| | High | Low |\n",
"|------|-------|-------|\n",
"| High | ?,? | ?,? |\n",
"| Low | ?,? | ?,? |\n",
"\n",
"\n",
"5. Chase, a rival of Jack Consulting company, proposes a new sales strategy. He proposes the following ad ***We offer a price matching. If our price is higher than the competitor, then we offer a 2.5 percent discount of the competitor price.*** (assume that the Russians were not succeful in their coding). Complete the new box with the appropriate values for Ben an John. \n",
"\n",
"6. A professor, from his gym lessons [](http://www.youtube.com/watch?v=2hFtaCHOVSs)\n",
", recognizes that Chase's recommendation is just the old famous Triki-Traka strategy. Is he correct? What's the advantage of this strategy? \n",
"\n",
"\n",
"\n"
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