Visa and Mastercard dominate the global payment processing industry, competing to attract cardholders and bank partnerships. Each company must decide whether to increase spending on credit card rewards programs (such as cashback and travel points) or maintain their current spending levels.• If neither company increases spending on rewards, each will earn a profit of $18 billion.• If both companies increase spending on rewards, each will earn a profit of $14 billion due to higher costs.• If one company increases rewards while the other does not, the company that offers better rewards will attract more customers and earn a profit of $21 billion, while the other company earns only $10 billion.(a) Construct a payoff matrix to represent this strategic decision.(b) If Visa and Mastercard could sign an enforceable contract, what would be the cooperative solution?(c) If they cannot make an enforceable agreement, what is the Nash equilibrium of this game? Explain why this outcome is likely.
Leave a Reply