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While the later could reduce prices only by around 10-15% because of their high costs, MDC”s low costs allows them to go down much further in price. Another aspect of SMSG”s strategy visible from the profit and demand analysis is that it makes financial sense for SMSG to punish for only one period. Since MDC has almost no footage in the market, trying to initially test SMSG”s response to price undercutting will not damage their prospects as much as other small players with high costs. The Game Before MDC Is Cooperation (Coop, Coop) an equilibrium in this market?
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