Week 1

Simultaneous Games I
Game Setting
 Toothpaste Wars
 Sensodyne and Colgate both sell toothpaste
 They share the market equally (total sales £10mn)
 Each company considers launching an
advertising campaign (costs £2.5mn)
• No effect on total market size and sales
• Increase of company‘s market share to 80%
• But only if the other does not advertise
 Game Setting (I/II)
 Players
• Sensodyne
• Colgate
 Actions
• Advertise
• Do not advertise
 Rules
• Both have to decide simultaneously
 Game Setting (II/II)
 Payoffs
• Both do not advertise: Each £5mn
• Both advetise: Each £5mn - £2.5mn =
• Only one advertises
o Advertiser:
£8mn - £2.5mn =
o Non-Advertiser: £2mn
 Matrix Form

Colgate
Advertise Do not advertise
Sensodyne

Advertise £2.5mn / £2.5mn £5.5mn / £2.0mn

Do not
£2.0mn / £5.5mn £5.0mn / £5.0mn
advertise
 Strategy
 Working definition for this course:
A player‘s plan of actions in a game (here: Ad/no Ad)
 This sounds trivial for now,
but very useful later on in more complex situations
Competitive Strategy
Tobias Kretschmer
Professor of Management, LMU Munich

© 2013 LMU Munich