Imagine that you own a pharmacy in your area. One of your competitors launches a “We will not be undersold” campaign, which promises consumers 150 % of any difference between its prices and the advertised prices of other pharmacies. Evaluate the social issues in your community as well as the economic culture that is influencing this type of pricing competition. Develop and describe a microeconomic model that is responsive to the service demands of your market. Based on your conclusions, how would you react to this situation and with what business strategy would you approach this? How might you apply game theory to the creation of your strategy?
Levaggi, L., & Levaggi, R. (2010). Strategic costs and preferences revelation in the allocation of resources for health care. International Journal of Health Care Finance and Economics, 10(3), 239-256. doi:http://dx.doi.org.proxy-library.ashford.edu/10.1007/s10754-010-9079-x. Retrieved from the EBSCOhost database.
This article examines the resources allocation process in the internal market for health care in an environment characterized by asymmetry of information. We analyze the strategic behavior of the provider and show how, by misreporting its cost function and reservation utility, it might shift the allocation of resources away from the purchaser’s objectives (Levaggi & Levaggi, 2010).
Westhoff, W. W., Cohen, C. F., Cooper, E., Corvin, J., & McDermott, R. J. (2012). Cooperation or competition: Does game theory have relevance for public health? American Journal of Health Education, 43(3), 175-183. Retrieved from the ProQuest database.
we use game theory to understand decisions to cooperate or to compete in the delivery of public health services. Health care is a quasi-public good that is often associated with altruistic behavior, yet it operates in an increasingly competitive environment. With mounting health care regulation and changes in privatization, altruistic arguments give way to more competitive rationales for market decisions (Westhoff, Cohen, et al. 2012).