[Year]

ECSG ASSIGNMENT Judo

Economics

SUBMITTED BY:
ECSG | Group No. 27

Member PGID Member Name Section

61710802 Abhishek Jain I
61710779 Prashant Pratap Singh I
61710766 Tanuj Govil I
61710788 Vishal Iyer I
61710825 Gaurav Gupta K
61710280 Rashida Bohra K
 JUDO ECONOMICS
The Game
Background Information:
In a certain market, there is a single incumbent player with sufficient capacity to serve all potential buyers. There
is also a second company, which is considering entering the market.

Stages of the Game:

1) In the first stage, the potential entrant must decide whether to enter the market. If it enters, it incurs a
nominal, irrecoverable entry cost.
2) In stage two, the entrant decides simultaneously on how many buyers to target and on a single price at
which to offer its product to the buyers it is targeting.
3) In stage three, the incumbent responds to the entrants choices by deciding on a single price at which to
offer its own product to all buyers.
4) In the fourth and final stage, buyers make their purchase decisions, and each company serves the buyers
that decide to purchase from it.

Variables:
M% = Market Share targeted by the Entrant Firm
PE = Price Charged by Entrant Firm
PI = Final Price of Incumbent Firm
CE = Cost of the Entrant Firm
CI = Cost of the Incumbent Firm
WTPE = Willingness to Pay for Entrant Product
WTPI = Willingness to pay for Incumbent Product
K% = % of customers not buying any of the product
Assumption:
Total number of buyers = 100
K% = 0
PE = PI
Game Analysis

Case 1: CE = CI
Market Share = M%
Price Entrant = PE

Enter Case 2: CE > CI

Market Share = M% Market Share = M%
Price Entrant = PE Price Entrant = PE
ENTRANT
Did not Enter Case 3: CE < CI
Incumbent FIrm = 5000 Market Share = M%
Entrant Firm = 0 Price Entrant = PE
Judo Strategy for the Entrant
The best strategy for the entrant firm is to charge a specific market segment at such a price that the best
response for the incumbent firm is to serve the segment of the market not targeted by the entrant. In
response to Entrant, Incumbent should price either same or a little lower than entrant. (For simplicity
assuming PE = PI)
Three different scenarios, which are possible in the game, are as follows:
1. CE = CI CE = CI = $ 100 ; WTPE = WTPI = $ 200
2. CE > CI CE = $120 ; CI = $ 100 ; WTPE = $ 160 , WTPI = $ 200
3. CE < CI CE = $80 ; CI = $ 120 ; WTPE = WTPI = $ 200

Case 1: CE = CI CE = CI = $ 100 ; WTPE = WTPI = $ 200

The best strategy in this case for the entrant would be to target a specific market segment with share of M%
by charging Price (PE ~ PI) such that it is more profitable for the incumbent to target rest of the market by
charging Max WTP rather than targeting the whole market at the competitive price.
(200 100) (100 %) ( 100) 100
200 %

Entrant Firm Profit ( )

= ( ) %
= (200 % 100) %
Maximizing Profit (Differentiating and equating to zero)
M% = 50%
PE = $ 150
= $2500

Case 2: CE > CI CE = $120 ; CI = $ 100 ; WTPE = $ 160 , WTPI = $ 200

The best strategy in this case for the entrant would be to target a specific market segment with share of M%
by charging Price (PE ~ PI) such that it is more profitable for the incumbent to target rest of the market by
charging Max WTP rather than targeting the whole market at the competitive price.
(200 100) (100 %) ( 100) 100
200 %

Entrant Firm Profit ( )

= ( ) %
= (200 % 120) %
Maximizing Profit (Differentiating and equating to zero)
M% = 40%
PE = $ 160
= $1600

Case 3: CE < CI CE = $80 ; CI = $ 120 ; WTPE = WTPI = $ 200

The best strategy in this case for the entrant would be to target a specific market segment with share of M%
by charging Price (PE ~ PI) such that it is more profitable for the incumbent to target rest of the market by
charging Max WTP rather than targeting the whole market at the competitive price.
(200 120) (100 %) ( 120) 100
4
200 %
5
Entrant Firm Profit ( )

= ( ) %
4
= 200 % 80 %
5
Maximizing Profit (Differentiating and equating to zero)
M% = 75%
PE = $ 140
= $4500

FINAL SUMMARY
Profit for both incumbent and the entrant firms are listed in the table below

COST WILLINGNESS TO PAY PRICE CHARGED MARKET SHARE PROFIT PROFIT OF INCUMBENT
CHARGING PE &
ENTRANT INCUMBENT ENTRANT INCUMBENT ENTRANT INCUMBENT ENTRANT INCUMBENT ENTRANT INCUMBENT TARGETING 100% Market
CASE 1 $ 100.00 $ 100.00 $ 200.00 $ 200.00 $ 150.00 $ 200.00 50% 50% $ 2,500.00 $ 5,000.00 $ 5,000.00
CASE 2 $ 120.00 $ 100.00 $ 160.00 $ 200.00 $ 160.00 $ 200.00 40% 60% $ 1,600.00 $ 6,000.00 $ 6,000.00
CASE 3 $ 80.00 $ 120.00 $ 200.00 $ 200.00 $ 140.00 $ 200.00 75% 25% $ 4,500.00 $ 2,000.00 $ 2,000.00