We are currently the only company in LA selling basketball gear and our revenue is $1,000,000 per year. A new company is raising funds preparing to enter the market. It is now November 1st and they are supposed to launch on January 1st. Since they are just starting, many things could go wrong. In particular, the probability that they will survive each month is 70%.
At the beginning of each month, we have the option to spend $200,000/month on sabotaging the rival company. If we decide to sabotage them on a particular month the probability that they survive that month drops to 29%.
If they manage to survive until January 1st (2 months) they will enter the market and capture half of our customers. Our goal is to find the optimal sabotaging strategy.
1. Draw the corresponding decision tree.
2. What is the optimal strategy?