Two manufacturers currently are competing for sales in two different but equally profitable… 1 answer below »

Two manufacturers currently are competing for sales in two different but equally profitable product lines. In both cases the sales volume for manufacturer 2 is three times as large as that for manufacturer 1. Because of a recent technological breakthrough, both manufacturers will be making a major improvement in both products. However, they are uncertain as to what development and marketing strategy to follow.

If both product improvements are developed simultaneously, either manufacturer can have them ready for sale in 12 months. Another alternative is to have a “crash program” to develop only one product first to try to get it marketed ahead of the competition. By doing this, manufacturer 2 could have one product ready for sale in 9 months, whereas manufacturer 1 would require 10 months (because of previous commitments for its production facilities). For either manufacturer, the second product could then be ready for sale in an additional 9 months.

For either product line, if both manufacturers market their improved models simultaneously, it is estimated that manufacturer 1would increase its share of the total future sales of this product by 8 percent of the total (from 25 to 33 percent). Similarly, manufacturer 1 would increase its share by 20, 30, and 40 percent of the total if it marketed the product sooner than manufacturer 2 by 2, 6, and 8 months, respectively. On the other hand, manufacturer1would lose 4, 10, 12, and 14 percent of the total if manufacturer 2 marketed it sooner by 1, 3, 7, and 10 months, respectively.

Formulate this problem as a two-person, zero-sum game, and then determine which strategy the respective manufacturers should use according to the minimax criterion.

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