Mitchell Electronics Produces a Home Video Game That Has Become

question 24

Essay

Mitchell Electronics produces a home video game that has become very popular with children. Mitchell's managers have reason to believe that Wright Televideo Company is considering entering the market with a competing product. Mitchell must decide whether to set a high price to accommodate entry or a low, entry-deterring price. The payoff matrix below shows the profit outcome for each company under the alternative price and entry strategies. Mitchell's profit is entered before the comma, and Wright's is after the comma.
a. Does Mitchell have a dominant strategy? Explain.
b. Does Wright have a dominant strategy? Explain.
c. Mitchell's managers have vaguely suggested a willingness to lower price in order to deter entry. Is this threat credible in light of the payoff matrix above?
d. If the threat is not credible, what changes in the payoff matrix would be necessary to make the threat credible? What business strategies could Mitchell use to alter the payoff matrix so that the threat is credible?

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Definitions:

Consent Decrees

Legal agreements approved by a judge that settle a dispute without admitting guilt or wrongdoing, often used in antitrust or civil rights cases.

Antitrust Case

A legal case targeting at breaking up monopolies or preventing unfair business practices that restrict competition.

Microsoft

A multinational technology company known for producing software, consumer electronics, personal computers, and related services.

Antitrust Laws

Laws designed to promote fair competition for the benefit of consumers, by regulating anti-competitive practices and promoting market fairness.