Example :-15.13 (N.

D Vohra)
Q. In a small town ,there are only two stores that handle
sundry goods- ABC and XYZ.The total number of customers
is equally divided between the two, because price and quality
of goods sold are equal. Both stores have good reputation in
the community, and they render equally good customer
service. Assume that a gain of customer by ABC is a loss to
XYZ and vice versa. Both stores plan to run annual pre
Diwali sales during the first week of November. Sales are
advertised through a local newspaper, radio and television
media. With the aid of an advertising firm ,store ABC
constructed the game matrix given below.(Figures in the
matrix represent a gain or loss of customers.)
 Strategy Strategy Of XYZ
Of
ABC News paper Radio Television

News paper 30 40 -80

Radio 0 15 -20
Television 90 20 50

Determine optimal strategies and worth of such strategies for

both ABC and XYZ.
Solution :-
The game matrix, with row minima and column maxima
Strategy Strategy Of XYZ Row
Of Mini
ABC News paper Radio Television mal

News paper 30 40 -80 -80

Radio 0 15 -20 -20
Television 90 20 50 20
Column 90 40 50
Maxima
MINI MAX STRATEGY FOR XYZ MAXIMIN STRATEGY FOR ABC

Evidently, saddle point does not exist. Now ,we can see that row 3
dominates row 2, and column 3 dominates column 1. Deleting R₂ and
C₁,the game reduces to the order 2 Ẋ 2 ,as shown in next slide.
 Radio Television
Newspaper 40 -80
Television 20 50

With usual meaning of the symbols used, we have

X= a₂₂ -a₂₁ = 50 - 20 = 30 =1/5.
(a₁₁+a₂₂)-(a₁₂+a₂₁) (40+50)-(-80+20) 150
Y= a₂₂ -a₁₂ = 50 –(-80) = 130 = 13/15.
(a₁₁+a₂₂)-(a₁₂+a₂₁) (40+50)-(-80+20) 150
V = (a₁₁ ₓ a₂₂) – (a₁₂ ₓ a₂₁) = (40 ₓ50) +(80 ₓ 20) = 3600 = 24 .
(a₁₁+a₂₂)-(a₁₂+a₂₁) (40+50)-(-80+20) 150
Thus Optimal strategies are :

Newspaper Radio Television

For ABC : 1/5 0 4/5
For XYZ : 0 13/15 2/15

Thus the value of game = 24.

Example 15.16
A Company is currently involved in negotiations with its union on
the upcoming wage contract. With an aid of an outside mediator,
the table below was constructed by the management group. The
pluses are to be interpreted as proposed wage increases while a
minus figure indicates that a wage reduction is proposed . The
mediator informs the management groups that he has been in
touch with the union and that they have constructed a table that
is comparable to the table developed by the management. Both
the company and the union must decide on an overall strategy
before negotiations begin. The management group understands
the relationship of company strategies to union strategies in the
following table but lacks specific knowledge of game theory to
select the best strategy (or strategies) for the firm. Assist the
management on this problem. What game value and strategies
are available to the opposing groups?
 Conditional costs to company

Company (In Lac Rs)

strategies Union strategies
U₁ U₂ U₃ U₄

C₁ +0.25 +0.27 +0.35 -0.02

C₂ +0.02 +0.16 +0.08 +0.08
C₃ +0.14 +0.12 +0.15 +0.13
C₄ +0.30 +0.14 +0.19 0.00
 Since the company represents the “minimising “ and the union
the “maximising player “,we shall recast the pay-off matrix (by
taking transpose of given matrix) as follows:

Union (In Lac Rs)

strategies Company strategies
C₁ C₂ C₃ C₄

U₁ +0.25 +0.20 +0.14 +0.30

U₂ +0.27 +0.16 +0.12 +0.14
U₃ +0.35 +0.08 +0.15 +0.19
U₄ -0.02 +0.08 +0.13 0.00

This game has no saddle point.

We observe that all entries in the third row of this matrix are
greater than ,or equal to, the corresponding entries in the
fourth row . Thus ,fourth row is dominated by the third row
and hence can be deleted .
Deleting it we get,

Union (In Lac Rs)

strategies Company strategies
C₁ C₂ C₃ C₄

U₁ +0.25 +0.20 +0.14 +0.30

U₂ +0.27 +0.16 +0.12 +0.14
U₃ +0.35 +0.08 +0.15 +0.19

In this matrix ,the first column is dominated both by the

second and the third columns; and the fourth column is
dominated by the third column .Deleting the dominated
columns.
The matrix is reduced to the following:

Union (In Lac Rs)

strategies Company strategies
C₂ C₃

U₁ +0.20 +0.14
U₂ +0.16 +0.12
U₃ +0.08 +0.15

Here the second row is dominated by the first . Deleting this

row we get the following matrix of the order 2 x 2,and obtain
the solution to the game analytically.
 Union (In Lac Rs)
strategies Company strategies
C₂ C₃

U₁ +0.20 +0.14
U₃ +0.08 +0.15

If x be the probability with which the union adopts policy U₁ and

Y be the probability of adoption of C₂ by the company ,we
have
x= 0.15-0.08 = 7 ;
(0.20+0.15) – (0.08+0.14) 13
y= 0.15 – 0.14 = 1 ; and
(0.20+0.15)- (0.08+0.14) 13
V = 0.20 ẋ 0.15 – 0.08 ẋ 0.14 = 0.0188 = 47
(0.20 + 0.15)–(0.08 + 0.14) 0.1300 325
Thus , optimal strategy for the company is (0,1/13,12/13,0); for
the union it is (7/13,0,6/13,0) and the game value is
47/325(representing increased wages).
Example 15.1 (N.D. Vohra)
Two leading firms ,Nirmala,Textiles Ltd. And Swati Rayons Ltd.,
for years have been selling shirting which is but a small part of
both firms total sales. The marketing Director of Nirmala
Textiles raised the question ,”What should the firm’s strategies
be in terms of advertising for the product in Question ?” The
system groups of Nirmala textiles developed the following
data for varying degrees of advertising:
(a) No advertising ,medium advertising and heavy advertising for
both firms will result in equal market share.
(b) Nirmala Textiles with no advertising :40 % of the market with
medium advertising by Swati Rayons and 28% of the market
with heavy advertising by Swati Rayons.
(c) ) Nirmala Textiles with medium advertising : 70% of the
market with no advertising by Swati Rayons and 45% of the
market with heavy advertising by Swati Rayons.
(d) ) Nirmala Textiles using heavy advertising : 75% of the market
with no advertising by Swati Rayons and 52.5% of the market
with medium advertising by Swati Rayons .
Based upon the above information ,answer the marketing
director,s question .

The pay-off matrix from the viewpoint of Nirmala Textiles

Ltd.,Showing its market sahre under several combinations of
the strategies,is given below . Also ,row minima and column
maxima have been obtained to see if saddle point exists.
 Question Contd. ……

Swati Rayons Ltd.’s Strategy

No. Med. Hvy. Row
Advt. Advt. Advt. Minima
b₁ b₂
b₃
Nirmala No. a₁ 50 40 28 28
Textile Advt.
Ltd. Med. a₂ 70 50 45 45
Strategy Advt.
Hvy. a₃ 75 52.5 50 50*
Advt.
Column Maxima 75 52.5 50*
We observe that saddle point exists at the intersection of a₃
and b₃. Thus ,the optimal strategy for each one is to engage in
heavy advertising and it will result in an even distribution of
the market between the firms. Nirmala textiles Ltd’s
marketing director should , therefore, resort to heavy
advertising .