Managerial Economics/Adv. Math

I pasted the problem I am to solve below. I missed the first week of class, so the professor told me to do this case as a make-up assignment; however, we are not covering this chapter and I'm confused! My professor did tell me that I need to use the bimatrix game theory and input the data to find the answer. I don't know what in the world to do! See below. Please help!



Memo 7
To: Pricing Manager, District 6SW
From: Vice President, Marketing
Re: Strategic Pricing Decision

Our only competitor in District 6SW currently provides bundled services at $84.95. We are
currently charging a 10% premium over their price, but there are unsubstantiated rumors that
they are contemplating a 10% price increase. We don’t know their cost structure, so we don’t
know whether their potential price increase is driven by cost increases or is merely a strategic
move on their part.

Historically, when we both charge the same price, our market share is about 65%. When we
charge a 10 percent premium over their price, our market share declines to about 60%. It
appears that in those instances where they have charged a 10% premium over our price, our
market share is about 70%.

Please provide a recommendation regarding whether we should maintain our current price or
reduce our price to $84.95. Please factor into your recommendation that we pay
programming fees to providers that amount to $32.50 for each subscriber. In addition,
maintenance, service and billing costs are about $7.60 per subscriber. At present, there are
about 110,000 households in the relevant area.

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asked by Dwane

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