excel assignment
bahlman2
Bahlman_Chapter_8_Game_Tree_Problem_Start.xlsxProblem
| Game Tree Problem | |||||||||
| TOMS, a shoe retailer founded in 2006 by Blake Mycoskie, was founded on the One to One principle. For each pair purchased of TOMS shoes, the TOMS company would donate a pair to a child in need; over 60 million pairs of shoes have been donated worldwide so far. Sketchers, another shoe retailer, decided to release a line of shoes in 2010 and name them BOBS. For every purchase of BOBS, Sketchers will also donate a pair of shoes to a child in need; over 14 million pairs of shoes have been donated to date. This scenario provides an excellent example of an entry game. Suppose you are making decisions for firms like Toms (Firm A) or Sketchers (Firm B). Suppose Firm A currently enjoys $20 million in profit each year. If Firm B enters the market with a similar product and Firm A does nothing, Firm A's will lose $5 million in profits and Firm B will gain enough market share to earn $6 million in profits. Firm A could try to combat the entry of Firm B by lowering prices, increasing advertising, or moving to a Two for One principle but this would lower their profits an additional $5 million; because entry was combated, Firm B's estimated profits will be lower by $7 million if they enter. Firm A could also take the same actions to combat entry if Firm B decided not to join the market; the effect on their profits is the same. All relevant values are gathered in the table below. | |||||||||
| Firm A | Millions of dollars | ||||||||
| Current Profit $ | 20 | ||||||||
| Loss If Allows Entry | 5 | ||||||||
| Additional Loss If Combats Entry | 5 | ||||||||
| Firm B | |||||||||
| Estimated Profits | 6 | ||||||||
| Loss If Firm A Combats | 7 | ||||||||
| a) | A game tree modeling this game is provided below. Enter payoffs in millions of dollars. | ||||||||
| Firm B | |||||||||
| Node A Decision | Enter | Do Not Enter | |||||||
| Firm A | Firm A | ||||||||
| Node B Decisions | Combat Entry | Allow Entry | Combat Entry | Allow Entry | |||||
| Payoff of Firm A | |||||||||
| Payoff of Firm B | |||||||||
| b) | What will Firm A and B each decide to do? | ||||||||
| Firm A should | |||||||||
| Firm B should | |||||||||
| c) | How much profit will each firm make based on this decision? | ||||||||
| Firm A will earn $ | million | ||||||||
| Firm B will earn $ | million | ||||||||
| d) | Would a threat from Firm A to combat entry be credible? | ||||||||
| The threat from Firm A to combat entry | be credible. | ||||||||
Instructions
| Project Description: In this problem, you will calculate the payoffs for the branches of the game tree and determine what decision should be made based on the game tree. | ||
| For the purpose of grading the project you are required to perform the following tasks: | ||
| Step | Instructions | Points Possible |
| 1 | Start Excel. | 0 |
| 2 | In cells D22, D23, F22, F23, H22, H23, J22, and J23, do the following: By using cell references, calculate the payoffs for Firm A and Firm B for each of the game tree branches. Use cells E6-E8 and E10-E11. Enter zero as a numeric value if the payoff is zero. Note: Do not use the equal sign when entering a numeric value. | 8 |
| 3 | In cells D25 and D26, determine the correct decisions for each of the firms. | 2 |
| 4 | In cells D28 and D29, by using cell references, calculate the profit for each of the firms based on the decision made. Use appropriate cells among D22-D23, F22-F23, H22-H23, and J22-J23. | 2 |
| 5 | In cell F31, determine whether the threat from Firm A to combat entry is credible. | 1 |
| 6 | Save the workbook. Close the workbook and then exit Excel. Submit the workbook as directed. | 0 |
