Game Theory Question Sub Station has the only sub restaurant

Game Theory Question

Sub Station has the only sub restaurant in Town A and the only sub restaurant in town B. The sub market in each town yields a profit of $100K per year. Rival Sub Machine is considering opening a restaurant in Town A in year 1. If it does, the two stores will split the profit from the sub market there. However, Sub Machine will have to pay setup costs for its new store. These costs are $25K in a store\'s first year. Sub Station fears that if Sub Machine is able to make a profit in Town A, it will open a store in Town B the following year. Sub Station is considering a price war: if Sub Machine opens a store in either town, it will lower prices in that town, forcing Sub Machine to do the same, to the point where profits from the sub market will drop to zero This game is represented in the game tree below: SM don\'t open store in A open store in A (0, 400K) price war in A no price war in A SM (-25K, 20oK) don\'t open store in B open store in B (75K, 300K) price war in B no price war in B (50K, 200K) (100K, 250K) Figure 1: Extensive Form Game for Competition between restaurant chains The entry (100K, 250K) in the game tree comes about as follows. If there are no price wars, Sub Machine makes net profits of $25K in Town A in year 1, $50K in Town A ín year 2 and $25K ?n Town B in year 2, for a total of $100K. Sub Station makes profits of $50K in Town A in year 1, $100K in Town B in year 1 and $50K in Town A in year 2, $50K in Town B in year 2 Use backward induction to analyze this game. What is the sequentially rational equilibrium?

Solution

Risk Taking Ability - Tim Cook knows he must take risks for him to be successful. Knowing that we seldom fail, he takes risks to be successful. The ability to take calculated risk is highly not possible when he don’t believe in people around him. Trust factors are his fundamental belief that transformed him to be a great successor for Iconic Steve Jobs. Listen effectively and Focus during conversations - Compared to Steve Jobs Tim Cook is reserved and quiet which might be because he is always focused and listening very attentively to what his people say around him. He believes in the proverb of using appropriately our assets of having two ears and just one mouth and they have to be used proportionately. This is a great learning from Tim Cook that anyone can learn from his leadership skills Being accountable for our own actions - Talent and Robust leaders believe and understands that they need to admit when they are seldom wrong so they can move on with next thing. Tim firmly believes in accepting when he is wrong. He complements Steve for admitting his mistakes and he recognizes that as one of his trait that he possess as same as his predecessor. The strong lesson to be learned from Tim on this is the courage to change your mind based on various analysis and avoid those historical mistakes. Diversity - Apple is an organization that fosters innovation in their DNA which required people with the different mindset and standalone independent employees who creates the future of the organization. He strongly believes in think tankers who are different from different cultural and diversified background. Humbleness - Do not forget our past. Tim certainly manages a lot to visit his past Apple stores and interact with his colleagues and customers face to face and another medium of communication. It is easy to lose the job what we hold today but it\'s significant to keep oneself grounded without forgetting our past. Staying humble gains you earn the respect of staff and is considered to be the best quality for being a successful leader.