Q1.

M/S Godrej & Boyce and Hindustan Lever Ltd. have been selling competing products Cinthol
and Liril, respectively. The Brand manager of Cinthol raised the following Question: What
should be the firm’s strategy in terms of advertising for Cinthol? The Market Research group of
Godrej & Boyce developed data for varying degrees of advertising by Liril and Cinthol:
i. No advertising, medium advertising and high advertising by both the firms will result in
equal marketing share for Liril and Cinthol.
ii. No advertising by Cinthol will result in a market share of 40% and 28% if medium level
of advertising and heavy level of advertising respectively is adopted by Liril.
iii. If Cinthol adopts medium level of advertising it will achieve a market share of 70% with
no advertising by Liril and 45% market share with heavy advertising by Liril.
iv. If Cinthol resorts to heavy advertising it would achieve a market share of 75% with no
advertising by Liril and would get a 47.5% market share with medium advertising by
Liril.
a. Design Pay-off Matrix for Cinthol (Godrej).
b. Solve the game.
A.
Company Liril
Cinthol Strategy Low Medium High
advertisement advertisement advertisement
(B1) (B2) (B3)
Low 50 40 28
 advertisement
(A1)
Medium 70 50 45
advertisement
(A2)
High 75 47.5 50
advertisement
(A3)

Finding saddle point:

Company Liril Maximin
Cinthol Strategy Low Medium High
advertisement advertisemen advertisement
(B1) t (B2) (B3)
Low 50 40 28 28
advertisement
(A1)
Medium 70 50 45 45
advertisement
(A2)
High 75 47.5 50 47.5
advertisement
(A3)
Minimax 75 50 50

Minimax ≠ Maximin. So, no saddle point. Applying dominance rule.

Company Liril
Cinthol Strategy Low Medium High
advertisement advertisement advertisement
(B1) (B2) (B3)
Low 50 40 28
advertisement
(A1)
Medium 70 50 45
advertisement
(A2)
High 75 47.5 50
advertisement
(A3)

Row A1 is dominated by row A2.

Company Liril
 Cinthol Strategy Low Medium High
advertisement advertisement advertisement
(B1) (B2) (B3)
Medium 70 50 45
advertisement
(A2)
High 75 47.5 50
advertisement
(A3)

Column B1 is dominated by B2.

Company Liril
Cinthol Strategy Medium High
advertisement advertisement
(B2) (B3)
Medium 50 45
advertisement
(A2)
High 47.5 50
advertisement
(A3)

No further dominance.
Company Liril
Cinthol Strategy Probability Medium High
advertisement advertisement
(B2) (B3)
Y 1–Y
Medium X 50 45
advertisement
(A2)
High 1–X 47.5 50
advertisement
(A3)

a22−a21 50−47.5 1
X= = =
[ ( a22 +a11 )−( a21+ a12) ] [ ( 50+50 )−( 47.5+ 45 ) ] 3

a22−a12 50−45 2
Y= = =
[ ( a22+ a11 ) −( a21 +a12 ) ] [ ( 50+50 )− ( 47.5+ 45 ) ] 3
 (a ¿ ¿ 12∗a21) (50∗50)−(45∗47.5) 145
Value of Game=(a ¿ ¿ 22∗a11 )− = = ¿¿
[ ( a22+ a11 ) −( a21 +a12 ) ] [ ( 50+50 )− ( 47.5+45 ) ] 3
∴ The value of game is 145/3 and the strategy for Cinthol (A) is (0, 1/3, 2/3) and for Liril (B) is
(0, 2/3, 1/3)
Q2.
Following table shows the pay-off matrix for player A for each combination of strategies of
player A and B:

A B

B1 B2 B3 B4

A1 3 2 4 0

A2 3 4 2 4

A3 4 2 4 0

A4 0 4 0 8

Solve the game?

A.

A B

B1 B2 B3 B4

A1 3 2 4 0

A2 3 4 2 4

A3 4 2 4 0

A4 0 4 0 8

Finding saddle point:

A B Maximin
B1 B2 B3 B4
A1 3 2 4 0 0
A2 3 4 2 4 2
A3 4 2 4 0 0
 A4 0 4 0 8 0
Minimax 4 4 4 8

Minimax ≠ Maximin. So, no saddle point. Applying dominance rule.

A B
B1 B2 B3 B4
A1 3 2 4 0
A2 3 4 2 4
A3 4 2 4 0
A4 0 4 0 8

Row A1 is dominated by A3.

A B
B1 B2 B3 B4
A2 3 4 2 4
A3 4 2 4 0
A4 0 4 0 8

Column B1 is dominated by column B3.

A B
B2 B3 B4
A2 4 2 4
A3 2 4 0
A4 4 0 8

No further direct dominance so using the linear combination.

 A B
B2 B3 B4 Linear
combination of
B3 and B4
A2 4 2 4 2+ 4
=3
2
A3 2 4 0 4+ 0
=2
2
A4 4 0 8 8+0
=4
2

Here, the linear combination of B3 and B4 column dominates the B2.

A B
B3 B4
A2 2 4
A3 4 0
A4 0 8

Again, using linear combination.

A B
B3 B4
A2 2 4
A3 4 0
A4 0 8
Linear combination of 4+ 0 0+8
=2 =4
A3 and A4 2 2

Here, the linear combination of A3 and A4 rows dominates the A2.

A B
 B3 B4
A3 4 0
A4 0 8

No further dominance.

A Probability B
B3 B4
Y 1–Y
A3 X 4 0
A4 1–X 0 8

a22−a21 8−0 2
X= = =
[ ( a22 +a11 )−( a21+ a12) ] [ ( 8+ 4 )−( 0+0 ) ] 3
a22−a12 8−0 2
Y= = =
[ ( a22+ a11 ) −( a21 +a12 ) ] [ ( 8+ 4 ) −( 0+0 ) ] 3
(a ¿ ¿ 12∗a21) (8∗4 )−( 0) 8
Value of Game=(a ¿ ¿ 22∗a11 )− = = ¿¿
[ ( a22+ a11 ) −( a21 +a12 ) ] [ ( 8+ 4 )− ( 0+0 ) ] 3
∴ The value of game is 8/3 and the strategy for A is (0, 0, 2/3, 1/3) and for B is (0, 0, 2/3, 1/3)
Q3.
In respect of a two-person zero sum game, the following pay off matrix is given:

Store Y
Store X Y1 Y2 Y3

X1 1 -2 1
X2 -1 3 2

X3 -1 -2 3

a. Find the optimal strategies for both the stores

b. Obtain the value of the game.
A.

Store Y
Store X Y1 Y2 Y3

X1 1 -2 1
X2 -1 3 2

X3 -1 -2 3

Finding saddle point:

Player Y Maximin
Player X Y1 Y2 Y3
X1 1 -2 1 -2
X2 -1 3 2 -1
X3 -1 -2 3 -2
Minimax 1 3 3

Minimax ≠ Maximin. So, no saddle point. Applying dominance rule.

Column Y3 is dominated by Y1.

Player Y
Player X Y1 Y2
X1 1 -2
X2 -1 3
X3 -1 -2

Row X3 is dominated by X2

Player Y
Player X Y1 Y2
X1 1 -2
 X2 -1 3

a22−a21 3−(−1) 4
X= = =
[ ( a22 +a11 )−( a21+ a12) ] [ ( 3+1 )−((−1)+(−2) ) ] 7

a22−a12 3−(−2) 5
Y= = =
[ ( a22+ a11 ) −( a21 +a12 ) ] [ ( 3+1 )− ((−1)+(−2)) ] 7
(a ¿ ¿ 12∗a21) (3∗1)−((−1)∗(−2)) 1
Value of Game=(a ¿ ¿ 22∗a11 )− = = ¿¿
[ ( a22+ a11 ) −( a21 +a12 ) ] [ ( 3+1 )−( (−1)+(−2)) ] 7
∴ The value of game is 1/7 and the strategy for A is (4/7, 3/7, 0.2) and for B is (5/7, 2/7, 0).
Q4.
Two competitors are competing for the market share of the similar product. The payoff matrix in
terms of their advertising plan is shown below.

Competitor B
Competitor A No advertising Medium advertising High advertising
No advertising 10 5 -2
Medium advertising 13 12 13
High advertising 16 14 10
Suggest optimal strategies for the two firms and net outcome thereof.
A.

Competitor B
Competitor A No advertising Medium advertising High advertising
No advertising 10 5 -2
Medium advertising 13 12 13
High advertising 16 14 10

Finding the saddle point:

Competitor B Maximin

Competitor A No advertising Medium High advertising

 advertising
No advertising 10 5 -2 -2

Medium 13 12 13 12
advertising
High advertising 16 14 10 10

Minimax 16 14 13

Minimax ≠ Maximin. So, no saddle point. Applying dominance rule.

Competitor B
Competitor A No advertising Medium advertising High advertising (B3)
(B1) (B2)
No advertising (A1) 10 5 -2
Medium advertising 13 12 13
(A2)
High advertising (A3) 16 14 10

Row A1 is dominated by row A2.

Competitor B
Competitor A No advertising Medium advertising High advertising (B3)
(B1) (B2)
Medium advertising 13 12 13
(A2)
High advertising (A3) 16 14 10

Column B1 is dominated by column B2.

Competitor B
Competitor A Medium advertising High advertising (B3)
(B2)
Medium advertising (A2) 12 13
 High advertising (A3) 14 10

No further dominance.

Competitor B
Competitor A Probability Medium advertising High advertising (B3)
(B2)
Medium advertising X 12 13
(A2)
High advertising (A3) 1–X 14 10

a22−a21 10−14
X= = =0.8
[ ( a22 +a11 )−( a21+ a12) ] [ ( 10+12 ) −( 13+14 ) ]
a22−a12 10−13
Y= = =0.6
[ ( a22+ a11 ) −( a21 +a12 ) ] [ ( 10+12 )−( 13+14 ) ]
(a ¿ ¿ 12∗a21) (10∗12)−(13∗14 )
Value of Game=(a ¿ ¿ 22∗a11 )− = =12.4 ¿ ¿
[ ( a22+ a11 ) −( a21 +a12 ) ] [ ( 10+12 )−( 13+14 ) ]
∴ The value of game is 12.4 and the strategy for A is (0, 0.8, 0.2) and for B is (0, 0.6, 0.4).
Q5.
Two firms A and B make colour and black and white television sets. Firm A can make either 150
colour sets in a week or an equal number of black and white sets and make a profit of Rs. 400 per
colour set and Rs.300 per black and white set. Firm B can on the other hand make either 300
colour sets or 150 colour and 150 black and white sets or 300 black and white sets per week. It
also has the same profit margin on the two sets as A. Each week there is a market of 150 colour
sets and 300 black and white sets and the manufactures would share market in the proportion in
which they manufacture a particular type of set. Write the payoff of A per week. Obtain A’s and
B’s optimal strategies and value of the game.
A.
Company Firm B Maximin
Firm A Strategies 300 Black & 150 Black & 300 Color
white (B1) white and (B3)
150 Color
(B2)
150 Black & 30,000 45,000 45,000 30,000
white (A1)
 150 Color (A2) 60,000 30,000 20,000 20,000
Minimax 60,000 45,000 45,000

Minimax ≠ Maximin. So, no saddle point. Applying dominance rule.

Company Firm B
Firm A Strategies 300 Black & 150 Black & 300 Color
white (B1) white and (B3)
150 Color
(B2)
150 Black & 30,000 45,000 45,000
white (A1)
150 Color (A2) 60,000 30,000 20,000

Column B2 dominated by B3.

Company Firm B
Firm A Strategies 300 Black & white 300 Color (B3)
(B1)
150 Black & white (A1) 30,000 45,000

150 Color (A2) 60,000 20,000

Comparing the above matrix to general 2 * 2 matrix and finding the value of game.
a22−a21 20,000−60,000 40 8
X= = = =
[ ( a22 +a11 )−( a21+ a12) ] [ ( 20,000+30,000 )−( 60,000+45,000 ) ] 55 11
a22−a12 20,000−45,000 25 5
Y= = = =
[ ( a22+ a11 ) −( a21 +a12 ) ] [ ( 20,000+30,000 )− ( 60,000+ 45,000 ) ] 55 11
(a ¿ ¿ 12∗a21) (20,000∗30,000)−(60,000∗45,000)
Value of Game=(a ¿ ¿ 22∗a11 )− = =38,181.818 ≅ 38,18
[ ( a22+ a11 ) −( a21 +a12 ) ] [ ( 20,000+30,000 )−( 60,000+ 45,000 ) ]
∴ The value of game is 38,182 and the strategy for A is (8/11, 3/11) and for B is (5/11, 0, 6/11)