Case Scenario:
Two would-be wine makers (Mr. Ripple and Poor Richard) are contemplating entering the low end wine market in the country of Zuba. Two types of wine are being considered by both—Brown Bag and Street Corner. Both wines are franchised and the franchisees are offering the rights to bottle their wine in Zuba in an open English auction (where all bidders can hear the other bidders’ bid and can top it if they wish).
If both produce Brown Bag wine (which could happen if there was a tie for the top bid), Mr. Ripple would make profits of 50 and Poor Richard would make profits of 30. If both produce Street Corner, Mr. Ripple will make profits of 25 and Poor Richard will make profits of 35. If Mr. Ripple makes Brown Bag and Poor Richard makes Street Corner, Mr. Ripple makes profits of 105 and Poor Richard makes profits of 40. If Mr. Ripple makes Street Corner and Poor Richard makes Brown Bag, Mr. Ripple makes profits of 60 and Poor Richard makes profits of 95.
Mr. Ripple and Poor Richard can’t collude and the laws of Zuba prohibit a wine producer to market more than one brand of wine. Who will bottle what type of wine and what will the franchise rights for Brown Bag sell for and what will the franchise rights for Street Corner sell for?
Mr. Ripple will bottle _________wine
Poor Richard will bottle ________ wine
Brown Bag’s franchise rights will sell for ________
Street Corner’s franchise rights will sell for _________