The Chain Store Game
A monopolist (Player A) has branches in 20 towns. He faces 20 potential competitors, one in each town, who will be able to choose IN or OUT. They do so in sequential order and one at a time. If a potential competitor chooses OUT, he receives a payoff of 1, while A receives a payoff of 5. If he chooses IN, he will receive a payoff of either 2 or 0, depending on the response of Player A to his action. Player A, in response to a choice of IN, must choose one of two pricing strategies, COOPERATIVE or AGGRESSIVE. If he chooses COOPERATIVE, both player A and the competitor receive a payoff of 2, and if A chooses AGGRESSIVE, each player receives a payoff of 0.
These outcomes lead to two theories for the game, the induction (game theoretically correct version) and the deterrence theory (weakly dominated theory):
Read more about this topic: Chainstore Paradox
Famous quotes containing the words chain, store and/or game:
“The name of the town isn’t important. It’s the one that’s just twenty-eight minutes from the big city. Twenty-three if you catch the morning express. It’s on a river and it’s got houses and stores and churches. And a main street. Nothing fancy like Broadway or Market, just plain Broadway. Drug, dry good, shoes. Those horrible little chain stores that breed like rabbits.”
—Joseph L. Mankiewicz (1909–1993)
“Finishing schools in the fifties were a good place to store girls for a few years before marrying them off, a satisfactory rest stop between college weekends spent husband hunting. It was a haven for those of us adept at styling each other’s hair, playing canasta, and chain smoking Pall Mall extra-long cigarettes.”
—Barbara Howar (b. 1934)
“I have a notion that gamblers are as happy as most people, being always excited; women, wine, fame, the table, even ambition, sate now & then, but every turn of the card & cast of the dice keeps the gambler alive—besides one can game ten times longer than one can do any thing else.”
—George Gordon Noel Byron (1788–1824)