Wednesday, October 5, 2011
Convenience Stores
I really liked the activity we did concerning the convenience stores in Pemberton. My group, Isabella and I, wanted to maximize profits through each round. We knew that the other team would not want to surrender possible profits on their side. We decided to have our store stay closed the first set of weeks in order to minimize losses. We did this because of the unpredictability of the other convenience store. After staying open the first set of weeks we generated a loss of $100,000. During the first negotiating stage our group agreed to stay closed if the other group stayed closed. We continued this cooperation through the rest of the simulating and each convenience store ended up with a profit of $160,000. I think that this exercise was a great representation of the Nash equilibrium. This means that if all parties involved move directly towards their greatest profits all parties will end up missing out on even greater profits. By having the convenience stores cooperate with each other both attained a greater profit than if each worked alone. In a way, the two independent convenience stores represented two persons in a group that begin to depend on each other. When this interdependence occurs better things happen.
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I liked the way you performed in the exercise, however in retrospect instead of minimizing losses for the first week you might have been better remaining open. Maximizing profits was the goal and I think you did well overall, but it the first week I believe that the correct decision may have been to remain open. I also agree that this exercise was a perfect look into game theory. This applies it in such away that it is applicable to the real world and lets us observe what the best course of action may be.
ReplyDeleteAgreeing with the comment above, remaining open the first week, or actually for the first 4 weeks most likely, would have been the better decision. Then once you can talk or work with your competitor, negotiating and creating a deal to work together and both make a profit then becomes even better. This was a good activity to show how working together as a "team" with another company, instead of individually, can help you both attain greater profit.
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