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In November 1999 a new competitor entered the market. Aldi, a German discount supermarket chain opened its first two stores in Dublin and Cork, and within a few months opened a further two in Letterkenny and Galway. Aldi's no-frills, low-price approach immediately captured price-conscious shoppers. Consumers were attracted by discounts of up to 30 per cent on a range of 500 own-brand goods. For example, in December, milk at the Aldi store in Cork only cost 89p for two litres, 25p less than at other local supermarkets. With Aldi's current plans to open between four and six more supermarkets before the end of 2000, what should Dunnes Stores and Tesco do? Should they let Aldi enter the market without any response or should they try to keep Aldi out? Should they engage in a price war? The key to understanding the dilemma facing the supermarkets is accessible through a game theoretic approach. Game theory provides a tool for thinking about how contracts are shaped. Real life strategic situations are complicated and filled with uncertainty. Game theory provides a way to simplify a problem and highlight the key points needed to make the best choices. Good decisions require that each decision-maker anticipates the decisions of others. To do this each company must 'put themselves in the other companies shoes' and then make their decisions based on how they think the other will act. In this way each company can try to predict well in advance the actions, responses and counter responses of all their rivals and then choose the best route or the best strategy for themselves.
Approximate Word count = 943
Approximate Pages = 3.8
(250 words per page double spaced)
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