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:
“Oh yes, that’s right. They chain up wild animals. That’s all I am, an animal.”
—John Elder [Anthony Hinds], British screenwriter, and Terence Fisher. Leon (Oliver Reed)
“It used to be said that you had to know what was happening in America because it gave us a glimpse of our future. Today, the rest of America, and after that Europe, had better heed what happens in California, for it already reveals the type of civilisation that is in store for all of us.”
—Alistair Cooke (b. 1908)
“He may travel who can subsist on the wild fruits and game of the most cultivated country.”
—Henry David Thoreau (1817–1862)