Question: Firm A and firm B are battling for market share in two separate markets. Market I is worth $30 million in revenue; market II is worth $18 million. Firm A must decide how to allocate its three salespersons between the markets. Firm B has only two salespersons to allocate. Each firms revenue share in each market is proportional to the number of salespeople the firm assigns there. For example, if firm A puts two salespeople and firm B puts one salesperson in market I, A’s revenue from this market is (2/(2+1)$30 = $20 million and B’s revenue is the remaining $10 million. (The firms split a market equally if neither assigns a salesperson to it.) Each firm is solely interested in maximizing the total revenue it obtains from the two markets.

A. Compute the complete payoff table. (Firm A has four possible allocations;

3-0, 2-1, 1-2, and 0-3. Firm B has three allocations; 2-0, 1-1, and 0-2.) Is this a constant sum?

B. Does either firm have a dominant strategy (or dominated strategy)? What is the predicted outcome?