The table lists the profits of two different spa chains, Elite and Supreme. The profits depend on the number of locations each chain has in a certain city.
Each chain has one location, and both owners are considering expansion. If you were the owner of Elite Day Spas, what would you do if you want to gain a first-mover advantage?
\[\begin{array}{l}
\text { Table: Profits of Elite Day Spa and Supreme Day Spa (in thousands of dollars) }\
\begin{array} { | l | l | l | l | }
\hline & \text { Elite has one location. } & \text { Elite has two locations. } & \text { Elite has three locations. } \
\hline \begin{array} { l }
\text { Supreme has } \
\text { one location. }
\end{array} & \begin{array} { l }
\text { Supreme profits } = \$ 30 \
\text { Elite profits } = \$ 30
\end{array} & \begin{array} { l }
\text { Supreme profits } = \$ 15 \
\text { Elite profits } = \$ 50
\end{array} & \begin{array} { l }
\text { Supreme profits } = \$ 7 \
\text { Elite profits } = \$ 35
\end{array} \
\hline \begin{array} { l }
\text { Supreme has } \
\text { two locations. }
\end{array} & \begin{array} { l }
\text { Supreme profits } = \$ 50 \
\text { Elite profits } = \$ 15
\end{array} & \begin{array} { l }
\text { Supreme profits } = \$ 20 \
\text { Elite profits } = \$ 20
\end{array} & \begin{array} { l }
\text { Supreme profits } = \$ 6 \
\text { Elite profits } = \$ 10
\end{array} \
\hline \begin{array} { l }
\text { Supreme has } \
\text { three } \
\text { locations. }
\end{array} & \begin{array} { l }
\text { Supreme profits } = \$ 35 \
\text { Elite profits } = \$ 7
\end{array} & \begin{array} { l }
\text { Supreme profits } = \$ 10 \
\text { Elite profits } = \$ 6
\end{array} & \begin{array} { l }
\text { Supreme profits } = \$ 0 \
\text { Elite profits } = \$ 0
\end{array} \
\hline
\end{array}
\end{array}\]
A)Announce expansion plans while you begin to search for a new location.
B)Quickly and quietly open a second location before Supreme has time to act.
C)Quickly and aggressively open two more locations before Supreme has time to act.
D)Coordinate with the Supreme owner to decide jointly about expansion for both firms.

Question

The table lists the profits of two different spa chains, Elite and Supreme. The profits depend on the number of locations each chain has in a certain city.
Each chain has one location, and both owners are considering expansion. If you were the owner of Elite Day Spas, what would you do if you want to gain a first-mover advantage?
\[\begin{array}{l}
\text { Table: Profits of Elite Day Spa and Supreme Day Spa (in thousands of dollars) }\
\begin{array} { | l | l | l | l | } 
\hline & \text { Elite has one location. } & \text { Elite has two locations. } & \text { Elite has three locations. } \
\hline \begin{array} { l } 
\text { Supreme has } \
\text { one location. }
\end{array} & \begin{array} { l } 
\text { Supreme profits } = \$ 30 \
\text { Elite profits } = \$ 30
\end{array} & \begin{array} { l } 
\text { Supreme profits } = \$ 15 \
\text { Elite profits } = \$ 50
\end{array} & \begin{array} { l } 
\text { Supreme profits } = \$ 7 \
\text { Elite profits } = \$ 35
\end{array} \
\hline \begin{array} { l } 
\text { Supreme has } \
\text { two locations. }
\end{array} & \begin{array} { l } 
\text { Supreme profits } = \$ 50 \
\text { Elite profits } = \$ 15
\end{array} & \begin{array} { l } 
\text { Supreme profits } = \$ 20 \
\text { Elite profits } = \$ 20
\end{array} & \begin{array} { l } 
\text { Supreme profits } = \$ 6 \
\text { Elite profits } = \$ 10
\end{array} \
\hline \begin{array} { l } 
\text { Supreme has } \
\text { three } \
\text { locations. }
\end{array} & \begin{array} { l } 
\text { Supreme profits } = \$ 35 \
\text { Elite profits } = \$ 7
\end{array} & \begin{array} { l } 
\text { Supreme profits } = \$ 10 \
\text { Elite profits } = \$ 6
\end{array} & \begin{array} { l } 
\text { Supreme profits } = \$ 0 \
\text { Elite profits } = \$ 0
\end{array} \
\hline
\end{array}
\end{array}\]
A)Announce expansion plans while you begin to search for a new location.
B)Quickly and quietly open a second location before Supreme has time to act.
C)Quickly and aggressively open two more locations before Supreme has time to act.
D)Coordinate with the Supreme owner to decide jointly about expansion for both firms.

Quizplus · Accepted Answer

To gain a first-mover advantage, the best strategy is to quickly and quietly open a second location. This move increases Elite's profits to $50k while reducing Supreme's to $15k if they remain with one location, according to the table. This strategy maximizes Elite's profits while minimizing the immediate competitive response from Supreme.

The Table Lists the Profits of Two Different Spa Chains