Bajaj - Strategy: A Game-Theory Approach

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[pic 1]

So based on the survey we conclude that the additional 1000crores market will be distributed among the two players in the ratio 4:1 (the company launching in 2016 will have additional 800crores of revenue while the company launching in 2017 will have the additional 200crores of revenue only.

2016 launch

2017 launch[pic 2]

2016 launch

4000 crores, 4000 crores[pic 3]

4800 crores, 4200 crores

2017 launch

4200 crores, 4800 crores

3000 crores, 3000 crores

If, however both companies wait for a late launch in 2017, none will gain any market share. In fact, their size in the market pie will diminish to a maximum of 6000 crores, which they will divide equally amongst them. This is a result of the fact that the other players would use the absence of the BS IV compliant two-wheelers and capture at least one-third of the total 9000cr pie.

Since the table is symmetric, the row player and column player pay-offs are same. If the column player goes for a 2016 launch, the row player would have to respond with a 2017 launch strategy to maximise pay-offs. If the column player goes for a 2017 strategy, the row player’s best move is to go for a 2016 launch strategy. Since the table is symmetric, the strategies are same for the column player. Thus none of the players have a dominant strategy.

The Nash equilibria are circled in red in the pay-off matrix. Under the given conditions none of the players can further improve their payoffs by choosing any other strategy other than the Nash equilibrium conditions. Since there is no single Nash Equilibrium condition, and the two Nash equilibria are symmetric, the companies would have to use some other form of decision making criteria like minimax regret or maximin strategies to break the tie.