Walmart can be viewed as a first mover. Now suppose both Walmart and HEB are considering whether and how to enter a potential market. Market demand is given by the inverse demand function p= 900−q1−q2, where p is the market price margin, q1 is the quantity sold by Walmart and q2is the quantity sold by HEB. To enter the market, a retailer must build a store. Two types of stores can be built: Small and Large. A Small pantry store requires an investment of $50,000, and it allows the retailer to sell as many as 100 units of the goods at zero marginal cost. Alternatively, the retailer can pay $175,000 to construct a Large full-service supermarket that will allow it to sell any number of units at zero marginal cost. Assume Walmart stays out of the potential market (i.e.Walmart chooses not to enterN1at the first stage,q1= 0). Calculate HEB’s profit for the following cases: a.) HEB chooses not to enter N at the second stage after viewing Walmart’schoice. b.) HEB chooses to build a small pantry store S at the second stage after viewing Walmart’s choice. c.) HEB chooses to build a large full-service supermarket L at the second stage after viewing Walmart’s choice.
Walmart can be viewed as a first mover. Now suppose both Walmart and HEB are considering whether and how to enter a potential market.
Market demand is given by the inverse demand function p= 900−q1−q2, where p is the market price margin, q1 is the quantity sold by Walmart and q2is the quantity sold by HEB.
To enter the market, a retailer must build a store. Two types of stores can be built: Small and Large. A Small pantry store requires an investment of $50,000, and it allows the retailer to sell as many as 100 units of the goods at zero marginal cost. Alternatively, the retailer can pay $175,000 to construct a Large full-service supermarket that will allow it to sell any number of units at zero marginal cost.
Assume Walmart stays out of the potential market (i.e.Walmart chooses not to enterN1at the first stage,q1= 0). Calculate HEB’s profit for the following cases:
a.) HEB chooses not to enter N at the second stage after viewing Walmart’schoice.
b.) HEB chooses to build a small pantry store S at the second stage after viewing Walmart’s choice.
c.) HEB chooses to build a large full-service supermarket L at the second stage after viewing Walmart’s choice.
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