Exhibit 8 Payoff Matrix (in $ 000s)
20%
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
New York (NY) had long represented a major opportunity for modern street furniture. Rather than have one company own the entire city contract, the NY Bloomberg administration proposed a model where two companies would compete on the revenue-share offered to the city, with the number of concessions allocated based on the relative attractiveness of the bid. More specifically, for every 2 percent difference between the revenue share proposals, the city would increase (decrease) the allocation to the higher (lower) revenue share company by 5%, with the concessions split 50:50 when the revenue share percentage is the same. After a long and intense selection process, Clear Channel and JCDecaux emerged as the two finalists who would submit competing bids.
Based on internal cost and revenue projections, JCDecaux's Corporate Strategy group provided Jean-François Decaux with a matrix of revenue-sharing scenarios, along with the corresponding profits for both JCDecaux and Clear Channel (see Exhibit 8).
a. Determine the Nash Equilibrium from Exhibit 8 and explain your answer. Assume JCDecaux and Clear Channel seek to maximize their own payoffs. (10%)
b. What type of alternative strategies might JCDecaux and Clear Channel use to improve their profits beyond those obtained if they play the strategies you identified in your previous answer? CONTRACT ADDED TEST + COMP
c. How would the following modifications to the scenario likely change (or not change) your analysis? You are not expected to create a new contribution matrix for either of the following scenarios, but thinking about how the contribution matrix might change in general terms may be helpful.
i. The Bloomberg administration revises the rules so that the allocation of concessions favors the higher bidder to a greater degree. - EXCEL
ii. Clear Channel acquires a new technology that improves the quality and/or efficiency of their panels. - WTP change-cost?! can they do it?!
