Acquiring a Company ■ Scenario The value of T depends on the outcome of a current oil exploration project ◆ Failure:7 s value=$0 . Success: Ts value =$100/share All outcomes are equally likely Chapter 13 Slide 11
Chapter 13 Slide 11 Acquiring a Company ◼ Scenario ⚫ The value of T depends on the outcome of a current oil exploration project. ◆Failure: T’s value = $0 ◆Success: T’s value = $100/share ◆All outcomes are equally likely
Acquiring a Company a Scenario ● Ts value wi‖be50% greater with As management A, must submit the proposal before the exploration outcome is known o T will not choose to accept or reject until after the outcome is known only to T. a How much should a offer? Chapter 13 Slide 12
Chapter 13 Slide 12 Acquiring a Company ◼ Scenario ⚫ T’s value will be 50% greater with A’s management. ⚫ A, must submit the proposal before the exploration outcome is known. ⚫ T will not choose to accept or reject until after the outcome is known only to T. ◼ How much should A offer?
Dominant Strateqies a Dominant Strategy o One that is optimal no matter what an opponent does ● An EXample .A&B sell competing products They are deciding whether to undertake advertising campaigns Chapter 13 Slide 13
Chapter 13 Slide 13 Dominant Strategies ◼ Dominant Strategy ⚫ One that is optimal no matter what an opponent does. ⚫ An Example ◆A & B sell competing products ◆They are deciding whether to undertake advertising campaigns
Payoff Matrix for Advertising Game Firm B Don't Advertise Advertise Advertise 10,5 15,0 Firm A Don't Advertise 6,8 10.2 Chapter 13 Slide 14
Chapter 13 Slide 14 Payoff Matrix for Advertising Game Firm A Advertise Don’t Advertise Advertise Don’t Advertise Firm B 10, 5 15, 0 6, 8 10, 2
Payoff Matrix for Advertising Game Observations A: regardless of Firm B Don't Advertise advertise B, advertising is the best Advertise 10.5 15,0 B: regardless of A, advertising is Firm A best Don't Advertise 6,8 10.2 Chapter 13 Slide 15
Chapter 13 Slide 15 Payoff Matrix for Advertising Game Firm A Advertise Don’t Advertise Advertise Don’t Advertise Firm B 10, 5 15, 0 6, 8 10, 2 ◼ Observations ⚫ A: regardless of B, advertising is the best ⚫ B: regardless of A, advertising is best