Assume Two Locally Owned Used Car Dealerships That Have Been

question 22

Essay

Assume two locally owned used car dealerships that have been in direct competition for many decades. They have a choice of selling high-quality cars at a high price but also high costs because of the repairs that have to be made. The other choice is to sell low-quality cars at a low cost but market them as high quality cars. Explain using game theory why it is in the interest of both of these companies to continue to sell high-quality cars but it may not necessarily be in the interest of a new out-of-town dealership that has recently moved into town to do the same.

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Definitions:

Inventory

includes goods and materials a business holds for the purpose of resale or as part of its production process.

Year-End

The end of a financial year, a period used for accounting purposes and preparing financial statements.

Adjusting Entries

Entries made in the accounting records at the end of an accounting period to allocate income and expenses to the period in which they actually occurred.

Merchandising Company

A company that purchases goods ready for sale and sells them to customers, typically involved in retail or wholesale trade.